Alignment of Accounting Standards
A prudent businessman would decide whether to use or sell an asset based on its potential value. If an asset is sold now, its net realizable value after expenses is considered. This amount is compared to the value the asset would generate if used for its remaining useful life, known as its value in use. The more beneficial option is chosen naturally by the businessman/entity.
Accounting standards reflect this practice through impairment tests. Accounting standards specify that the recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. This approach ensures that the asset is not carried at more than its recoverable amount, aligning financial reporting with prudent business practices. By assessing both the potential selling price and the future utility of the asset, businesses can make informed decisions that optimize value.
By CA L.Muralidharan and CPA L.Mukundan
Visit www.sreeramcoachingpoint.com for more blogs
Contact: 6383228202 or 9884439769
Also use our app Gyanji for more utility and benefits
Best place of coaching for CPA, CMA USA & CA
