Value-in-use
Encyclopedia
Value in Use is the net present value (NPV) of a cash flow or other benefits that an asset generates for a specific owner under a specific use. In the U.S., Value-in-Use is generally estimated at a use which is less than highest-and-best use, and therefore value-in-use is generally lower than market value
.
When a particular user enjoys special benefits, such as extraordinary financing, agglomeration benefits, or grandfathered zoning, then the value may be higher than market value
, and the value is considered to be an investment value
.
(IVS 2007) re-states the International Financial Reporting Standards definition of Value-in-Use, which would allow for either a higher value than market value or a lower value than market value:
As defined in IVS2, Investment Value
is the valuation equivalent of the accountancy concept of Value-in-use. Whereas IFRSs define the accountancy concepts of Fair Value
and Value-in-Use in operational terms, IVSs define Market Value and Investment Value by way of generalised definitions.
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
.
When a particular user enjoys special benefits, such as extraordinary financing, agglomeration benefits, or grandfathered zoning, then the value may be higher than market value
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
, and the value is considered to be an investment value
Investment value
Investment value is the value of a property to a particular investor. In the U.S. and U.K., it is equal to market value for the investor who has the capacity to put the property to good use—its highest-and-best-use, its most valuable use...
.
International Valuation Standards
The current edition of International Valuation StandardsInternational Valuation Standards Committee
The International Valuation Standards Council is charged with developing robust and transparent procedures for performing international valuations through a single set of globally recognized valuation standards, acceptable to the world’s capital markets organisations market participants and...
(IVS 2007) re-states the International Financial Reporting Standards definition of Value-in-Use, which would allow for either a higher value than market value or a lower value than market value:
- Value in Use The present value of the future cash flows expected to be derived from an asset or a cash-generating unit.
As defined in IVS2, Investment Value
Investment value
Investment value is the value of a property to a particular investor. In the U.S. and U.K., it is equal to market value for the investor who has the capacity to put the property to good use—its highest-and-best-use, its most valuable use...
is the valuation equivalent of the accountancy concept of Value-in-use. Whereas IFRSs define the accountancy concepts of Fair Value
Fair value
Fair value, also called fair price , is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset, taking into account such objective factors as:* acquisition/production/distribution costs, replacement costs,...
and Value-in-Use in operational terms, IVSs define Market Value and Investment Value by way of generalised definitions.