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The following measures relate to a non-current asset:
1 – Carrying amount $20,000
2 – Net realisable value $18,000
3 – Value in use $22,000
4 – Replacement cost $50,000What is the recoverable amount of the asset?
a) $18,000
b) $20,000
c) $22,000 (correct answer)
d) $50,000I as considering that the net selling price would be the $50k (cost of a new asset) less the $18k (net realisable value that I understood could be the amount received if the asset was sold). So, $33k is higher than the value in use of $22k. But this option does not exists of course. So, I got confused. Could you please explain the difference between the elements 1 to 4 above?
Thanks.
“I as considering that the net selling price would be the $50k (cost of a new asset) less the $18k (net realisable value that I understood could be the amount received if the asset was sold)”
How can this make any sense?
If you sell it for $50,000 – $18,000 = $32,000 (not $33,000!) how can you sell it for $18,000 net realisable value?
It’s carried at $20,000 (cost less accumulated depreciation)
We can sell it for $18,000 (net realisable value = net sale proceeds)
If we keep it and use it, it’s worth $22,000 to us (value in use)
If we have to buy a replacement machine, that’s going to cost us $50,000
Recoverable amount is the HIGHER of value in use compared with net sale proceeds
OK?
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