Hi,
IAS 36 states that a maximum of 5 years forecast shall be used, unless a longer period can be justified.
In my case, we have a 7-year forecast on the basis that it reflects a more realistic forecast based on the nature of the long term contracts.
Question: Is it still appropriate to apply terminal value if we are using a 7 year forecast? If not, how long do we expect to extend the 7 year forecast to in order to reflect the long term growth?
Thanks in advance.
IAS 36 Value in use
Re: IAS 36 Value in use
Use the first 5 years from your forecast then apply the terminal value if it's appropriate to assume the asset will be valuable for ever....
The idea is that you can't reasonably forecast over 5 years so you can only assume the wider market growth rate after that
The idea is that you can't reasonably forecast over 5 years so you can only assume the wider market growth rate after that
Re: IAS 36 Value in use
The use of terminal value is largely independent of the length of the forecast. Just remember to apply a 7-year discount when bringing the terminal year's value back to the reporting date.
Re: IAS 36 Value in use
can you demonstrate your ability to accurately forecast 7 years ahead, based on a review of previous forecasts made? (ias 36 para 35)