Amount an entity expects to recover from an asset through use or disposal, used to judge whether impairment is required.
Recoverable amount is the amount expected to be recovered from an asset through use or disposal. In impairment analysis, it is the benchmark used to decide whether the asset’s carrying amount is too high.
Without a recoverable-amount test, assets can stay on the balance sheet at amounts that no longer reflect economic reality. The concept is especially important when assets are damaged, underused, technologically outdated, or tied to weaker cash-flow expectations.
Under impairment frameworks that use this term directly, recoverable amount is typically the higher of value in use and fair value less costs of disposal. Accountants compare that amount with the asset’s carrying amount. If carrying amount is higher, the asset is impaired and must be reduced.
This concept is most closely associated with impairment testing rather than routine depreciation. It often requires estimates about future cash flows, discounting, or disposal value, so the calculation can involve significant judgment.
A machine has a carrying amount of 140,000. Management estimates the following:
| Measure | Amount |
|---|---|
| Value in use | 115,000 |
| Fair value less costs of disposal | 100,000 |
| Recoverable amount | 115,000 |
| Impairment loss required | 25,000 |
Because the carrying amount exceeds recoverable amount by 25,000, the machine must be written down.
Recoverable amount is not just the expected selling price. It also is not the same as inventory net realizable value. The term is mainly used in impairment analysis for non-financial assets and depends on the relevant reporting framework.