Question

Under IFRS, value-in-use is defined as:

1. net realizable value.
2. fair value.
3. future cash flows discounted to present value.
4. total future undiscounted cash flows.

Short answer

The correct option is option (c): Future cash flows discounted to present value.

Step-by-step solution

Meaning of IFRS

International Financial Reporting Standardsis a collection of accounting standards produced by the International Accounting Standards Board(IASB), a non-profit organization. It is a collection of globally agreed accounting standards that lays out rules and procedures for accounting.

Explaining the correct option

Value in use is defined as the future cash flows which are discounted to the present value by multiplying it by discounted present value factor. So option (c), future cash flows discounted to present value is the correct option.

Explaining the incorrect options

Option (a): The net realizable value (NRV) of an object is the expected return after deducting the cost of selling it. Under IFRS, value-in-use is not defined as a net realizable value.

Option (b):A fair value represents the estimated value of its assets and liabilities. Fair market value refers to an item's sale value that is fair for both buyers and sellers. Fair value is quite different from the value-in-use.

Option (d):Cash flows that have not been modified to account for the time worth of money are known as undiscounted cash flows. This is the polar opposite of discounted cash flows when investment decisions are based only on the nominal value of cash flows.