ASC 310-10-35-25 provides a framework for measuring impairment based on the present value method. In general, if a creditor measures loan impairment based on present value calculations, the creditor will have to calculate that present value amount based on an estimate of the expected future cash flows of the impaired loan, discounted at the loan's effective interest rate. (See also ARM 3560.2231 and ARM 3560.2232.)

Expected future cash flows from impaired loans are usually uncertain, and creditors must exercise significant judgment in developing the estimates of expected future cash flows. The estimates should be the creditor's best estimate based on reasonable and supportable assumptions and projections. The basis for the cash flow estimates should be documented and subject to appropriate review procedures. All available evidence, including estimated costs to sell if those costs are expected to reduce the cash flows available to repay or otherwise satisfy the loan, should be considered in developing the estimate of expected future cash flows. The weight given to the evidence should be commensurate with the extent to which the evidence can be verified objectively. If a creditor estimates a range for either the amount or timing of possible cash flows, the likelihood of the possible outcomes shall be considered in determining the best estimate of expected future cash flows.