Definition of value-in-use
Value-in-use of an asset is the net present value of cash flows or some other benefits which is generated by an asset in a certain use for a certain owner. This term is used in the U.S. and is usually estimated at use and this value is less than the highest and best use and so this value is usually lesser than the market value. The value in use of an asset may be higher than market value, when a person gets special benefits like grandfathered zoning, agglomeration benefits, or extraordinary financing and at that time the value is regarded as an investment value.
The value in use of a property is the value or worth of that property under a specific use, which means the value of the property as it is being used at present. The value in use amount of a property may be more or less than its market value. For example, a land which is located at a place which is in the path of growth for a major project and is used as a small farm will have the value in use less than the market value. Such a land’s market value will be much higher than its value in use.
The concept of value in use first appeared in February 1987 and there were many people who favored it and wanted the value in use definition to be put in the official literature of American Society of Appraisers. The difference between the fair market value in exchange on tangible assets generally results in more residual value for intangible assets that is usually more than their value contribution. Since, it is difficult to find a real property according to the expectation, people are more inclined to pay premium to avoid startup costs and risk. It is for this reason; value in use definition is required. The value in use appraisal is best for business valuation and for allocation of purchase price. However, value in use appraisal is not suitable when a general use property has been vacant and is for sale in the open market or for financing purposes.