Meaning
An asset valuation metric represents the amount obtainable from the sale of an asset in an orderly transaction between market participants, minus the direct incremental expenses of the sale. This calculation is known as the fair value less costs of disposal, which acts as one of the two key figures used to determine the recoverable amount of an asset under accounting standards. It is not calculated for assets that are not held for sale or are not being tested for impairment.
Asset Valuation
Market-based measurements determine the price that would be received to sell an asset under current market conditions. When calculating the fair value less costs of disposal, accountants use observable market inputs whenever they are available. This approach increases valuation reliability.
Estimation Process
Incremental costs directly attributable to the sale of an asset are deducted from the estimated selling price. These expenses include transaction taxes and direct removal costs. No general restructuring costs or corporate overheads are included in the fair value less costs of disposal.
This restriction keeps the estimate focused strictly on the specific asset sale.
Impairment Calculation
Impairment losses must be recognized when the carrying amount of an asset exceeds its recoverable amount. The fair value less costs of disposal is compared to the value in use to determine that recoverable amount. The higher of the two values is used.
