Fair Value Less Costs of Disposal under Ind AS 36

Fair value less costs of disposal offers a market-based route to recoverable amount and can be particularly important when an asset or business has a stronger external sale value than its entity-specific value in use. Fair value is measured consistently with Ind AS 113, while costs of disposal are incremental costs directly attributable to disposal. Operationalising the requirement requires clear ownership, stable data, documented judgements and a link between the technical conclusion and the amounts presented in the financial statements. The model should not be confused with a distressed sale price or management's desired transaction value. A robust approach connects commercial substance, the Ind AS 36 decision criteria, measurement evidence and presentation consequences in one coherent file.

Adopt a market-participant perspective

The principle. Fair value reflects assumptions that market participants would use when pricing the asset or CGU in an orderly transaction at the measurement date. For a review-ready file, valuation should distinguish participant synergies from entity-specific benefits unavailable to buyers. The risk to avoid is building fair value from internal plans that a market participant would not accept. A concise review note should state the trigger, the rule applied, the evidence considered and the financial-statement consequence.

Use observable market evidence where available

The technical anchor. Quoted prices, comparable transactions, market multiples and other observable inputs can provide stronger evidence than an entirely internal DCF. In application, comparable adjustments should address differences in growth, margins, scale, risk and control. A frequent failure mode is using a headline sector multiple without reconciling the tested business to peers. Evidence should be retained at the same level of detail as the accounting conclusion, with assumptions version-controlled and exceptions explicitly approved.

Apply valuation techniques consistently

The accounting logic. Income, market or other accepted valuation approaches should maximise observable inputs and reflect the unit of account and market assumptions. Operationally, a DCF should use market-participant cash flows and discount rates rather than VIU assumptions by default. The main judgement risk is calling the same internal forecast both VIU and fair value merely by changing the discount rate. The accounting result should reconcile to the underlying contract, valuation or subledger rather than rely on a standalone spreadsheet conclusion.

Deduct costs of disposal appropriately

The decision point. Costs of disposal are incremental costs directly attributable to disposal, excluding finance costs and income taxes. For implementation, legal fees, stamp duties or direct transaction costs may be relevant depending on facts, while ordinary restructuring costs of a buyer are not disposal costs. Where errors often arise is deducting broad future operating costs from fair value. The working paper should identify the relevant facts, source data, judgement and conclusion so that an independent reviewer can reproduce the decision.

Reconcile valuation and carrying perimeter

The core requirement. The fair-value unit being valued should match the carrying amount tested, including assets, liabilities and market-participant assumptions consistently. In a controlled close process, valuation teams should use the same CGU or asset perimeter approved by accounting. A common weakness is valuing an enterprise including debt while comparing it with an operating-asset carrying amount without reconciliation. Where the conclusion is sensitive to a contractual clause or estimate, the file should show the alternative outcome and why the selected treatment is more appropriate.

Practical illustration

Assume a CGU operates in an active acquisition market where recent transactions provide reliable valuation multiples. A market approach adjusted for the CGU's margins and growth may support FVLCD even if management's VIU forecast is weak. The comparison must still deduct appropriate disposal costs and align the valuation perimeter with the carrying amount. The illustration is deliberately simplified: its purpose is to show how the accounting conclusion follows the underlying facts rather than to prescribe a single mechanical answer for every entity. Before posting an entry, the preparer should reconcile contractual terms, management's commercial intent, relevant estimates and system data to the specific accounting requirement. Where the outcome is sensitive, the file should show the key judgement and explain why the selected assumption is reasonable at the reporting date.

Documentation and control points

Professional application depends as much on process quality as technical knowledge. For this topic, a minimum control set should cover market evidence; valuation-technique approval; peer adjustment; disposal-cost schedule; and perimeter reconciliation. Ownership should be clear between the business, finance and any legal, tax, valuation, credit-risk or other specialists whose evidence is required. Source data should be dated and version-controlled; manual adjustments should show preparer, reviewer, rationale and approval. The final accounting memorandum should connect the conclusion to the general ledger or relevant subledger, presentation and disclosures. If facts or estimates change, the entity should reassess the conclusion when required and preserve an audit trail explaining the change.

Closing perspective

FVLCD is a market valuation embedded in impairment testing; it should stand on the same valuation discipline as any other fair-value measurement. The most useful way to apply Ind AS 36 is to treat the requirement as a decision framework rather than a compliance slogan. When the facts, accounting criteria, measurement evidence, controls and disclosure implications are considered together, the result is more consistent across reporting periods and easier to explain to management, auditors and users of the financial statements.