IAS 36Chapter 5Lesson 3
Value in use (3): discount rate and present value techniques
Step 1 of 7Learning objectives
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The discount rate expresses the price of time and of the risk specific to the asset. This lesson shows its characteristics (pre-tax, current market assessment, independent of financing), how to build it from adjusted starting rates, and the two techniques of Appendix A: the traditional approach (a single most likely cash flow, a risk-adjusted rate) and the expected cash flow approach (cash flows weighted by their probabilities). Worked calculations compare the two approaches.
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Learning objectives
- Explain the characteristics of the value in use discount rate.
- Build a rate from a starting rate (weighted average cost of capital, borrowing rate) and its adjustments, without double counting risks.
- Distinguish the traditional approach and the expected cash flow approach.
- Calculate an expected present value (uncertain amounts or timing) and a present value with separate rates per period.