Companies commonly use a five-year forecast period when calculating the recoverable amount. If a company has an asset (or cash-generating unit (CGU)) with a useful life that extends beyond the forecast period, then the company needs to calculate a terminal value for the asset (or CGU).
The terminal value reflects the present value of the cash flows to be generated by an asset (or CGU) from the end of the forecast period until the end of the asset’s (or CGU’s) life, or to perpetuity if it does not have a limited useful life.