Entity-specific value or value in use is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability. Entity-specific value
This is not a concept in use to estimate the fair value of an entity, group of assets or cash generating unit. Fair value measurement is based on what the possible transaction price could be in a regular market place. Entity-specific value
For most bases of value, the factors that are specific to a particular buyer or seller and not available to participants generally are excluded from the inputs used in a market-based valuation. Examples of entity-specific factors that may not be available to participants include: Entity-specific value
- additional value or reduction in value derived from the creation of a portfolio of similar assets,
- unique synergies between the asset and other assets owned by the entity,
- legal rights or restrictions applicable only to the entity,
- tax benefits or tax burdens unique to the entity, and
- an ability to exploit an asset that is unique to that entity.
Whether such factors are specific to the entity, or would be available to others in the market generally, is determined on a case-by-case basis. For example, an asset may not normally be transacted as a stand-alone item but as part of a group of assets. Any synergies with related assets would transfer to participants along with the transfer of the group and therefore are not entity specific.
If the objective of the basis of value used in a valuation is to determine the value to a specific owner, entity-specific factors are reflected in the valuation of the asset. Situations in which the value to a specific owner may be required include the following examples:
- supporting investment decisions, and
- reviewing the performance of an asset.
Some other uses of entity-specific values are:
An exchange transaction has ‘commercial substance’ if:
- the configuration of the cash flows (i.e. the amount, timing and uncertainty) of the assets received and transferred are different; or
- the entity-specific value of the portion of the entity’s operation affected by the transaction changes as a result of the exchange; and
- the difference in both of the above situations is significant when compared with the fair value of the assets exchanged. [IAS 16 25, IAS 38 46, IAS 40 28]
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