## Value in Use Calculation — Integration with AS 26 (Intangible Assets)
### Background: AS 26 Research vs. Development
Before an intangible asset can be impaired under AS 28, it must first be recognised under AS 26:
| Phase | Treatment |
|---|---|
| Research Phase | Expense to Profit & Loss (never capitalise) |
| Development Phase | Capitalise as intangible asset (if all 6 AS 26 criteria are met) |
Once capitalised, the intangible asset is tested for impairment under AS 28.
### Recoverable Amount — When NSP is Not Available
Recoverable Amount = max(Net Selling Price, Value in Use)
If NSP is not available (no active market for the asset), then:
Recoverable Amount = Value in Use (VIU)
### How to Calculate Value in Use
VIU = Present Value of future cash flows expected from the asset.
Steps:
1. Identify future cash inflows for each year of remaining useful life.
2. Identify an appropriate discount rate (pre-tax, risk-adjusted).
3. Multiply each year's cash flow by the present value factor (PVF): PVF = 1/(1+r)^n
4. Sum all discounted cash flows.
$$\text{VIU} = \sum_{t=1}^{n} \frac{CF_t}{(1+r)^t}$$
### Recognising Impairment on the Intangible
If CA > RA (VIU):
- Impairment Loss = CA − VIU
- Revised CA = VIU
- Future amortisation is based on revised CA over remaining useful life.