The market approach is a valuation technique that uses prices and other relevant information

generated fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.

Highest and best use refers to the use of a non-financial asset by market participants that would
maximize the value of the asset or the group of assets and liabilities (e.g. a business) within
which the asset would be used.

The income approach is a valuation technique that converts future amounts (e.g. cash flows or
income and expenses) to a single current (i.e. discounted) amount. The fair value measurement is
determined on the basis of the value indicated by current market expectations about those future
amounts. Liabilities, such as a business.

The cost approach is a valuation technique that reflects the amount that would be required
currently to replace the service capacity of an asset (often referred to as current replacement
cost).

Inputs are the assumptions that market participants by market transactions involving identical or
comparable (i.e. similar) assets, liabilities or a group of assets and would use when pricing the
asset or liability, including assumptions about risk, such as the following:

(a) The risk inherent in a particular valuation technique used to measure fair value (such as a
pricing model); and

(b) The risk inherent in the inputs to the valuation technique.

Inputs may be observable or unobservable.

Observable inputs are inputs that are developed using market data, such as publicly available
information about actual events or transactions, and that reflect the assumptions that market
participants would use when pricing the asset or liability.

Unobservable inputs are inputs for which market data are not available and that are developed
using the best information available about the assumptions that market participants would use
when pricing the asset or liability.

A market participant is a buyer and seller in the principal (or most advantageous) market for the
asset or liability that have all of the following characteristics:

(a) They are independent of each other, i.e. they are not related parties, although the price in a
related party transaction may be used as an input to a fair value measurement if the entity has
evidence that the transaction was entered into at market terms.
(b) They are knowledgeable, having a reasonable understanding about the asset or liability and
the transaction using all available information, including information that might be obtained
through due diligence efforts that are usual and customary.

(c) They are able to enter into a transaction for the asset or liability.

(d) They are willing to enter into a transaction for the asset or liability, i.e. they are motivated but
not forced or otherwise compelled to do so.

A principal market is a market with the greatest volume and level of activity for the asset or
liability.

The most advantageous market maximises the amount that would be received to sell the asset or
minimises the amount that would be paid to transfer the liability, after taking into account
transaction costs and transport costs

Measurement

Application to non-financial assets

Highest and best use for non-financial assets

A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by selling it
to another market participant that would use the asset in its highest and best use.

The highest and best use of a non-financial asset takes into account the use of the asset that is
physically possible, legally permissible and financially feasible, as follows:

(a) A use that is physically possible takes into account the physical characteristics of the asset
that market participants would take into account when pricing the asset (e.g. the location or size
of a property).

(b) A use that is legally permissible takes into account any legal restrictions on the use of the
asset that market participants would take into account when pricing the asset (e.g. the zoning
regulations applicable to a property).

(c) A use that is financially feasible takes into account whether a use of the asset that is
physically possible and legally permissible generates adequate income or cash flows (taking into
account the costs of converting the asset to that use) to produce an investment return that market
participants would require from an investment in that asset put to that use.

The asset or liability:

A fair value measurement is for a particular asset or liability. Therefore, when measuring fair
value an entity shall take into account the characteristics of the asset or liability if market
participants would take those characteristics into account when pricing the asset or liability at the
measurement date.

Such characteristics include, for example, the following:

(i) The condition and location of the asset; and

(ii) Restrictions, if any, on the sale or use of the asset.

The transaction:

A fair value measurement assumes that the asset or liability is exchanged in an orderly
transaction between market participants to sell the asset or transfer the liability at the
measurement date under current market conditions.

A fair value measurement assumes that the transaction to sell the asset or transfer the liability
takes place either:

(i) in the principal market for the asset or liability; or

(ii) in the absence of a principal market, in the most advantageous market for the asset or
liability.

The price:

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction in the principal (or most advantageous) market at the measurement date under
current market conditions (i.e. an exit price) regardless of whether that price is directly
observable or estimated using another valuation technique.

Market participants:

An entity shall measure the fair value of an asset or a liability using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants act
in their economic best interest.

Application to non-financial assets

Highest and best use for non-financial assets

A fair value measurement of a non-financial asset takes into account a market participant’s
ability to generate economic benefits by using the asset in its highest and best use or by selling it
to another market participant that would use the asset in its highest and best use.
The highest and best use of a non-financial asset takes into account the use of the asset that is
physically possible, legally permissible and financially feasible, as follows:

(a) A use that is physically possible takes into account the physical characteristics of the asset
that market participants would take into account when pricing the asset (e.g. the location or size
of a property).

(b) A use that is legally permissible takes into account any legal restrictions on the use of the
asset that market participants would take into account when pricing the asset (e.g. the zoning
regulations applicable to a property).

(c) A use that is financially feasible takes into account whether a use of the asset that is
physically possible and legally permissible generates adequate income or cash flows (taking into
account the costs of converting the asset to that use) to produce an investment return that market
participants would require from an investment in that asset put to that use.

Application to liabilities and an entity’s own equity instruments

A fair value measurement assumes that a financial or non-financial liability or an entity’s own
equity instrument (e.g. equity interests issued as consideration in a business combination) is
transferred to a market participant at the measurement date.

The transfer of a liability or an entity’s own equity instrument assumes the following:

(a) A liability would remain outstanding and the market participant transferee would be required
to fulfill the obligation. The liability would not be settled with the counterparty or otherwise
extinguished on the measurement date.

(b) An entity’s own equity instrument would remain outstanding and the market participant
transferee would take on the rights and responsibilities associated with the instrument. The
instrument would not be cancelled or otherwise extinguished on the measurement date

Liabilities and equity instruments held by other parties as assets:

When a quoted price for the transfer of an identical or a similar liability or entity’s own equity
instrument is not available and the identical item is held by another party as an asset, an entity
shall measure the fair value of the liability or equity instrument from the perspective of a market
participant that holds the identical item as an asset at the measurement date.

In such cases, an entity shall measure the fair value of the liability or equity instrument as
follows:

(a) using the quoted price in an active market for the identical item held by another party as an
asset, if that price is available.
(b) if that price is not available, using other observable inputs, such as the quoted price in a
market that is not active for the identical item held by another party as an asset.

(c) if the observable prices in (a) and (b) are not available, using another valuation technique,
such as:

(i) an income approach;

(ii) a market approach

Liabilities and equity instruments not held by other parties as assets:

When a quoted price for the transfer of an identical or a similar liability or entity’s own equity
instrument is not available and the identical item is not held by another party as an asset, an
entity shall measure the fair value of the liability or equity instrument using a valuation
technique from the perspective of a market participant that owes the liability or has issued the
claim on equity.

For example, when applying a present value technique an entity might take into account either of
the following:

(a) the future cash outflows that a market participant would expect to incur in fulfilling the
obligation, including the compensation that a market participant would require for taking on the
obligation; or

(b) the amount that a market participant would receive to enter into or issue an identical liability
or equity instrument, using the assumptions that market participants would use when pricing the
identical item (e.g. having the same credit characteristics) in the principal (or most
advantageous) market for issuing a liability or an equity instrument with the same contractual
terms.

When measuring the fair value of a liability, an entity shall take into account the effects of its
credit risk (credit standing) and any other factors that might influence the likelihood that the
obligation will or will not be fulfilled.

When measuring the fair value of a liability or an entity’s own equity instrument, an entity shall
not include a separate input or an adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the item. The fair value of a financial liability with a
demand feature (e.g. a demand deposit) is not less than the amount payable on demand,
discounted from the first date that the amount could be required to be paid.

Application to financial assets and financial liabilities with offsetting positions in market
risks or counterparty credit risk (exception)
An entity that holds a group of financial assets and financial liabilities is exposed to market risks
and to the credit risk of each of the counterparties. If the entity manages that group of financial
assets and financial liabilities on the basis of its net exposure to either market risks or credit risk,
the entity is permitted to apply an exception to this Standard for measuring fair value.

That exception permits an entity to measure the fair value of a group of financial assets and
financial liabilities on the basis of the price that would be received to sell a net long position (i.e.
an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a
particular risk exposure in an orderly transaction between market participants at the measurement
date under current market conditions.

Accordingly, an entity shall measure the fair value of the group of financial assets and financial
liabilities consistently with how market participants would price the net risk exposure at the
measurement date.

An entity is permitted to use the exception only if the entity does all the following:

(a) manages the group of financial assets and financial liabilities on the basis of the entity’s net
exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in
accordance with the entity’s documented risk management or investment strategy;

(b) provides information on that basis about the group of financial assets and financial liabilities
to the entity’s key management personnel, as defined in IAS 24 Related Party Disclosures; and

(c) is required or has elected to measure those financial assets and financial liabilities at fair
value in the statement of financial position at the end of each reporting period

Fair value at initial recognition

When an asset is acquired or a liability is assumed in an exchange transaction for that asset or
liability, the transaction price is the price paid to acquire the asset or received to assume the
liability (an entry price).

When determining whether fair value at initial recognition equals the transaction price, an entity
shall take into account factors specific to the transaction and to the asset or liability.

For example, the transaction price might not represent the fair value of an asset or a
liability at initial recognition if any of the following conditions exist:

(a) The transaction is between related parties, although the price in a related party transaction
may be used as an input into a fair value measurement if the entity has evidence that the
transaction was entered into at market terms.

(b) The transaction takes place under duress or the seller is forced to accept the price in the
transaction. For example, that might be the case if the seller is experiencing financial difficulty.
(c) The unit of account represented by the transaction price is different from the unit of account
for the asset or liability measured at fair value. For example, that might be the case if the asset or
liability measured at fair value is only one of the elements in the transaction (e.g. in a business
combination), the transaction includes unstated rights and privileges that are measured separately
in accordance with another IFRS, or the transaction price includes transaction costs.

(d) The market in which the transaction takes place is different from the principal market (or
most advantageous market). For example, those markets might be different if the entity is a
dealer that enters into transactions with customers in the retail market, but the principal (or most
advantageous) market for the exit transaction is with other dealers in the dealer market.

Valuation techniques

An entity shall use valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.

This Standard requires entities to apply valuation techniques consistent with any of the following
three methods:

(a) Market approach - uses prices and other relevant information generated by market
transactions involving identical or comparable (i.e. similar) assets, liabilities or a group of assets
and liabilities, such as a business

(b) Cost approach - reflects the amount that would be required currently to replace the service
capacity of an asset (often referred to as current replacement cost).

(c) Income approach - converts future amounts (e.g. cash flows or income and expenses) to a
single current (i.e. discounted) amount. The fair value measurement is determined on the basis of
the value indicated by current market expectations about those future amounts.

If the transaction price is fair value at initial recognition and a valuation technique that uses
unobservable inputs will be used to measure fair value in subsequent periods, the valuation
technique shall be calibrated so that at initial recognition the result of the valuation technique
equals the transaction price.

Fair value hierarchy

IFRS 13 introduces a fair value hierarchy that categorises inputs to valuation techniques into
three levels. The highest priority is given to Level 1 inputs and the lowest priority to Level 3
inputs. An entity must maximize the use of Level 1 inputs and minimize the use of Level 3
inputs.

Level 1 input
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the entity can access at the measurement date.

An entity shall not make adjustments to quoted prices, only under specific circumstances, for
example when a quoted price does not represent the fair value (i.e. when a significant event takes
place between the measurement date and market closing date).

Level 2 inputs

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly or indirectly. Adjustments to Level 2 inputs will vary
depending on factors specific to the asset or liability.

Level 2 inputs include the following:

(a) Quoted prices for similar assets or liabilities in active markets.

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active.

(c) Inputs other than quoted prices that are observable for the asset or liability, for example:

(i) Interest rates and yield curves observable at commonly quoted intervals;

(ii) Implied volatilities; and

(iii) Credit spreads.

(d) market-corroborated inputs.

Level 3 inputs

Level 3 inputs are unobservable inputs for the asset or liability. An entity shall use Level 3 inputs
to measure fair value only when relevant observable inputs are not available.

Presentation and disclosure

An entity shall disclose information that helps users of its financial statements assess both of the
following:

(a) for assets and liabilities that are measured at fair value on a recurring or non-recurring basis
in the statement of financial position after initial recognition, the valuation techniques and inputs
used to develop those measurements.

(b) for recurring fair value measurements using significant unobservable inputs (Level 3), the
effect of the measurements on profit or loss or other comprehensive income for the period.
In the Notes to the financial statement:

(a) An entity shall disclose, at a minimum, the following information for each class of assets and
liabilities measured at fair value after initial recognition, for recurring and non-recurring fair
value measurements:

(i) the fair value measurement at the end of the reporting period, and for non-recurring fair value
measurements, the reasons for the measurement;

(ii) the level of the fair value hierarchy within which the fair value measurements are categorised
in their entirety (Level 1, 2 or 3);

(iii) categorised within Level 2 and Level 3 of the fair value hierarchy, a description of the
valuation technique(s) and the inputs used in the fair value measurement. If there has been a
change in valuation technique (e.g. changing from a market approach to an income approach or
the use of an additional valuation technique), the entity shall disclose that change and the
reason(s) for making it. For fair value measurements categorised within Level 3 of the fair value
hierarchy, an entity shall provide quantitative information about the significant unobservable
inputs used in the fair value measurement.

(iv) categorised within Level 3 of the fair value hierarchy, a description of the valuation
processes used by the entity (including, for example, how an entity decides its valuation policies
and procedures and analyses changes in fair value measurements from period to period).

(v) if the highest and best use of a non-financial asset differs from its current use, an entity shall
disclose that fact and why the non-financial asset is being used in a manner that differs from its
highest and best use.

(b) An entity shall disclose, at a minimum, the following information for each class of assets and
liabilities measured at fair value after initial recognition, for recurring fair value measurements,
categorised within Level 3 of the fair value hierarchy:

(i) a reconciliation from the opening balances to the closing balances, disclosing separately
changes during the period attributable to the following:

• Total gains or losses for the period recognised in profit or loss, and the line item(s) in profit or
loss in which those gains or losses are recognised.

• Total gains or losses for the period recognised in other comprehensive income, and the line
item(s) in other comprehensive income in which those gains or losses are recognised.

• Purchases, sales, issues and settlements (each of those types of changes disclosed separately).
• the amounts of any transfers into or out of Level 3 of the fair value hierarchy, the reasons for
those transfers and the entity’s policy for determining when transfers between levels are deemed
to have occurred (linked to para (e)). Transfers into Level 3 shall be disclosed and discussed
separately from transfers out of Level 3.

the amount of the total gains or losses for the period included in profit or loss that is attributable
to the change in unrealised gains or losses relating to those assets and liabilities held at the end of
the reporting period, and the line item(s) in profit or loss in which those unrealised gains or
losses are recognised.

(iii) If there are interrelationships between those inputs and other unobservable inputs used in the
fair value measurement, an entity shall also provide a description of those interrelationships and
of how they might magnify or mitigate the effect of changes in the unobservable inputs on the
fair value measurement.

(iv) for financial assets and financial liabilities, if changing one or more of the unobservable
inputs to reflect reasonably possible alternative assumptions would change fair value
significantly, an entity shall state that fact and disclose the effect of those changes. The entity
shall disclose how the effect of a change to reflect a reasonably possible alternative assumption
was calculated. For that purpose, significance shall be judged with respect to profit or loss, and
total assets or total liabilities, or, when changes in fair value are recognised in other
comprehensive income, total equity.

(c) An entity shall disclose, at a minimum, the following information for each class of assets and
liabilities measured at fair value after initial recognition, for recurring fair value measurements,
categorised within Level 1 and Level 2 of the fair value hierarchy:

(i) for assets and liabilities held at the end of the reporting period, the amounts of any transfers
between Level 1 and Level 2 of the fair value hierarchy, the reasons for those transfers and the
entity’s policy for determining when transfers between levels are deemed to have occurred.
Transfers into each level shall be disclosed and discussed separately from transfers out of each
level.

(d) An entity shall determine appropriate classes of assets and liabilities on the basis of the
following:

(i) the nature, characteristics and risks of the asset or liability; and

(ii) the level of the fair value hierarchy within which the fair value measurement is categorised.

(e) An entity shall disclose and consistently follow its policy for determining when transfers
between levels of the fair value hierarchy are deemed to have occurred. The policy about the
timing of recognising transfers shall be the same for transfers into the levels as for transfers out
of the levels. Examples of policies for determining the timing of transfers include the following
 i. the date of the event or change in circumstances that caused the transfer.

(ii) the beginning of the reporting period.

(iii) the end of the reporting period.

If an entity makes an accounting policy decision to use the exception for financial assets and
financial liabilities with offsetting positions in market risks or counterparty credit risk, it shall
disclose that fact.

(g) For each class of assets and liabilities not measured at fair value in the statement of financial
position but for which the fair value is disclosed, an entity shall disclose the information as
required by this Standard. However, an entity is not required to provide the quantitative
disclosures about significant unobservable inputs used in fair value measurements categorised
within Level 3 of the fair value hierarchy. For such assets and liabilities, an entity does not need
to provide the other disclosures required by this Standard.

(h) For a liability measured at fair value and issued with an inseparable third-party credit
enhancement, an issuer shall disclose the existence of that credit enhancement and whether it is
reflected in the fair value measurement of the liability.

(i) An entity shall present the quantitative disclosures required by this Standard in a tabular
format unless another format is more appropriate.

In the Statement of Comprehensive Income

(a) In profit or loss:

(i) the amount of impairment losses recognised in profit or loss during the period and the line
item(s) of the statement of comprehensive income in which those impairment losses are
included;

(ii) the amount of reversals of impairment losses recognised in profit or loss during the period
and the line item(s) of the statement of comprehensive income in which those impairment losses
are reversed.

In other comprehensive income:

(i) the amount of impairment losses on revalued assets recognised in other comprehensive
income during the period; and

(ii) the amount of reversals of impairment losses on revalued assets recognised in other
comprehensive income during the period.

In the Notes to the financial statement:

(i) the events and circumstances that led to the recognition or reversal of the impairment loss;

(ii) the amount of the impairment loss recognised or reversed;

(iii) the nature of the asset; and

(iv) if the entity reports segment information in accordance with IFRS 8 Operating Segments the
reportable segment to which the asset belongs.

(b) For a cash-generating unit, for which an impairment loss has been recognised or
reversed during the period:

(i) the events and circumstances that led to the recognition or reversal of the impairment loss;

(ii) the amount of the impairment loss recognised or reversed;

(iii) a description of the cash-generating unit (such as whether it is a product line, a plant, a
business operation, a geographical area, or a reportable segment;

(iv) the amount of the impairment loss recognised or reversed by class of assets and, if the entity
reports segment information in accordance with IFRS 8 Operating Segments, by reportable
segment; and

(v) if the aggregation of assets for identifying the cash-generating unit has changed since the
previous estimate of the cash-generating unit’s recoverable amount (if any), a description of the
current and former way of aggregating assets and the reasons for changing the way the cash-
generating unit is identified.

(c) If the recoverable amount is:

(i) fair value less costs of disposal, the entity shall disclose the following information:

• the level of the fair value hierarchy (see IFRS 13 Fair Value Measurement) within which the
fair value measurement of the asset (cash-generating unit) is categorised in its entirety (without
taking into account whether the ‘costs of disposal’ are observable);

• for fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy,
a description of the valuation technique(s) used to measure fair value less costs of disposal; and
each key assumption on which management has based its determination of fair value less costs of
disposal; or
(ii) value in use, the discount rate(s) used in the current estimate and previous estimate (if any) of
value in use and key assumptions used to which the asset’s (cash-generating unit’s) recoverable
amount is most sensitive.

(d) An entity shall disclose the information required for each cash-generating unit (group
of units) for which the carrying amount of goodwill or intangible assets with indefinite
useful lives allocated to that unit (group of units) is significant in comparison with the
entity’s total carrying amount of goodwill or intangible assets with indefinite useful lives:

(i) the carrying amount of goodwill allocated to the unit (group of units);

(ii) the carrying amount of intangible assets with indefinite useful lives allocated to the unit
(group of units);

(iii) the basis on which the unit’s (group of units’) recoverable amount has been determined (i.e.
value in use or fair value less costs of disposal).

(iv) if the unit’s (group of units’) recoverable amount is based on value in use:

• Each key assumption on which management has based its cash flow projections for the period
covered by the most recent budgets/forecasts. Key assumptions are those to which the unit’s
(group of units’) recoverable amount is most sensitive.

• a description of management’s approach to determining the value(s) assigned to each key

• the period over which management has projected cash flows based on financial
budgets/forecasts approved by management and, when a period greater than five years is used for
a cash-generating unit (group of units), an explanation of why that longer period is justified.

• the growth rate used to extrapolate cash flow projections beyond the period covered by the
most recent budgets/forecasts, and the justification for using any growth rate that exceeds the
long-term average growth rate for the products, industries, or country or countries in which the
entity operates, or for the market to which the unit (group of units) is dedicated.

• the discount rate(s) applied to the cash flow projections.

(v) Or if the unit’s (group of units’) recoverable amount is based on fair value less costs of
disposal, the valuation technique(s) used to measure fair value less costs of disposal. An entity is
not required to provide the disclosures required by IFRS 13 Fair value measurement. If fair value
less costs of disposal is not measured using a quoted price for an identical unit (group of units),
an entity shall disclose the following information:
• each key assumption on which management has based its determination of fair value less costs
of disposal. Key assumptions are those to which the unit’s (group of units’) recoverable amount
is most sensitive.

• a description of management’s approach to determining the value (or values) assigned to each
key assumption, whether those values reflect past experience or, if appropriate, are consistent
with external sources of information, and, if not, how and why they differ from past experience
or external sources of information.

• the level of the fair value hierarchy within which the fair value measurement is categorised in
its entirety (without giving regard to the observability of ‘costs of disposal’).

• if there has been a change in valuation technique, the change and the reason(s) for making it.

(vi) And if fair value less costs of disposal is measured using discounted cash flow projections,
an entity shall disclose the following information:

 the period over which management has projected cash flows.