Example of value in use

Example of value in use

Value in use is the present value of future cash flows which expected to be generated from the use of asset. The following example explains the value in use

Future Cash flows	20,000
Expected period of cash flows	3 years
Discount Rate	6%

Calculate the value in use?

Solution

1. Determine the cash flows

2. Apply the discount rate for discounting

3. Add all discounted values

Year	Cash flows	Discount factor	NPV
1	20,000	1/1.06=.95	19,000
2	20,000	1/1.13=.89	17,800
3	20,000	1/1.2 = .84	16,800
Value in use			53,600