What Is Value in Use?

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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 15 May 2020
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Value in use is the value an asset provides for its owner as long as it is in use. This can differ from other forms of value like market value and can be useful for evaluating the utility of an asset to determine whether it should be retained, repaired, or taken out of service. Calculating value in use can be complex, and it is sometimes helpful to consult attorneys and accountants, depending on the nature of the asset, to get assistance with accurate valuation.

Real estate is an example of an asset that may be valued using this method. Owning a particular piece of real estate could have advantages like savings as a result of good financing, low taxes because of unique zoning, or more income because of the specific location. These savings, or the extra cost to replace the asset if the owner no longer had it, could be more than the fair market value; selling the property would result in taking a loss because the owner would miss out on value in use.

For businesses, determining value in use can be important for making buying and selling decisions. An owner may determine that a given asset is not for sale at any price because of the high value, or would only be willing to consider a sale in special circumstances. Benefits like grandfathered zoning clauses can be irreplaceable; for example, an unusual zoning quirk might allow a property owner to build higher than the current laws. This brings immense value to the owner, and it might expire when the property sells, making it nontransferable.

Consumers may have an interest in this subject as it could influence purchasing decisions. Some companies market their products with a specific value in use in mind, showing consumers how their ownership will generate earnings or savings, providing value beyond the inherent market value of the asset. This can extend useful life and make a potential new purchase more appealing to consumers concerned about savings and spending.

Calculating value in use requires looking at savings or earnings brought in by the property and comparing it to similar assets. It can be difficult to do this correctly. A third party can perform a neutral assessment. It is not advisable to rely on assessments from parties with a financial interest in an asset, as they may have an incentive to overstate or understate value in use, creating an inaccurate picture of the asset's total value.

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