Value in use (VIU) under IAS 36 is the present value of future cash flows expected to be derived from an asset or cash-generating unit (CGU), used as one of the two measures in the impairment test (the other being fair value less costs of disposal). If the carrying amount of the CGU exceeds its recoverable amount (the higher of VIU and FVLCD), an impairment loss must be recognized. For companies with significant goodwill or long-lived intangible assets on their balance sheet, the annual IAS 36 impairment test is a material financial reporting exercise.

The VIU calculation under IAS 36 follows specific rules that differ from a standard DCF business valuation: the cash flows must reflect management's best estimate of the CGU's future performance in its current condition (no restructuring not yet committed, no capacity expansions not yet approved), must use a pre-tax discount rate applied to pre-tax cash flows, and must include a terminal value reflecting the asset's recoverable amount at the end of the projection period. The pre-tax discount rate requirement creates a practical challenge: most market data provides post-tax WACCs, requiring a pre-tax equivalent to be derived (typically iterating until pre-tax flows discounted at the pre-tax rate equal post-tax flows discounted at the post-tax WACC).

At Hectelion, we perform IAS 36 impairment tests for companies with significant goodwill arising from acquisitions, providing fully documented VIU calculations consistent with the standard and defensible with external auditors.

At Hectelion, we perform IAS 36 impairment tests and VIU calculations for Franco-Swiss companies with goodwill and intangible assets in our valuation mandates.