Fair value less costs to sell (FVLCTS)

Fair value less costs to sell is the amount that a market participant would pay for the asset or CGU, less the costs of sale. The use of discounted cash flows (“DCF”) for FVLCTS is permitted where there is no readily available market price for the asset or where there are no recent market transactions for the fair value to be determined through a comparison between the asset being tested for impairment and a recent market transaction.

FVLCTS is less restrictive in its application than VIU and can be easier to work with. It is more commonly used in practice, particularly for recently-acquired assets. The underlying assumptions in a FVLCTS model are usually, but not always, closer to those that management have employed in their own forecasting process. The output of a FVLCTS calculation may feel intuitively more correct to management.

The assumptions and other inputs used in a DCF model for FVLCTS should incorporate observable market inputs as much as possible. The assumptions should be both realistic and consistent with what a typical market participant would assume. Assumptions relating to forecast capital expenditures that enhance the productive capacity of a CGU can therefore be included in the DCF model, but only to the extent that a typical market participant would take a consistent view.

The amount calculated for FVLCTS is a post-tax recoverable amount. The discount rate applied in FVLCTS should be a post-tax market rate based on a market participant’s weighted average cost of capital. As discussed in the Business Combinations section 6.4.6, an asset’s fair value reflects the price which would be paid for the individual asset if it were to be acquired separately. Accordingly, any Tax Amortisation Benefit (TAB) that would be available if the asset were acquired separately should be reflected in the fair value of the asset.

The FVLCTS is compared against the carrying amount of the CGU on an after-tax basis; that is, after deducting deferred tax liabilities relating to the CGU/group of CGUs. This is particularly relevant when testing goodwill for impairment. A major driver of goodwill in mining acquisitions is the calculation of deferred tax on the reserves and resources acquired. With relatively high marginal tax rates, the amount of goodwill can be substantial. The use of FVLCTS can alleviate the tension of substantial goodwill associated with depleting assets.

Nguồn: pwc.com