Ifrs 13
Ifrs 13
Ifrs 13
IFRS 13
• in an orderly transaction
Exit
price
Current
price
Exit price
Fair value is defined as:
In the
absence
of
a
principal the market that:
market • maximises the amount that
assume that the would be received to sell the
transaction takes place asset or
in the most • minimises the amount that
advantageous would be paid to transfer the
market liability
after considering transaction
costs and transport costs.
Transaction and transport
costs
include in explanatio
cost type description
fair value n
cost to sell the
asset/transfer the no, but characteristic
liability that are consider in of the
transaction directly assessment of transaction,
cost attributable to the which market is
not of the
disposal or most
advantageous asset/liability
transfer and would
not otherwise have
been incurred
B 25 2 23 1 22
Yes
No (*)
No Level
Are there any significant unobservable
inputs? 2
Yes
Level
3
Valuation techniques
When a price for an identical asset or liability is not observable,
an entity measures fair value using another valuation technique
that:
• maximises the use of relevant observable inputs and
• minimises the use of unobservable inputs
IFRS 13 provides guidance on the use of valuation techniques
when measuring fair value and states that there are three widely
used valuation techniques:
the market approach
the cost approach
the income approach
The fair value of non financial asset should reflect the highest
and best use from market participant perspective.
Highest and best use should take into account a use that is:
physically possible
financially feasible
CURRENT USE is presumed to be the
HIGHEST AND BEST USE
unless market or other factors suggest
otherwise
Non financial assets
Example
Entity A acquired a factory which includes:
plant and equipment, a building and land
Entity A is not allowed to change the use of the land and the
building for a period of 5 years
other entities have recently received planning consent to
redevelop industrial sites in the same region for residential
purposes
Entity A legal consultants' advice is that Entity A could sell the
land and the building to a third party and the restriction will
not apply on the buyers.
What is the highest and best use of the property?
Non financial assets
Solution
The fair value of the land and building should take into account
the possibility of the change of usage since the restriction is a
characteristic of Entity A and not a characteristic of the asset.
Therefore, the fair value of the property will be the higher of:
Is there a quoted price for the transfer of an Yes the fair value
identical or a similar liability or entity’s own is the quoted
equity instrument? price
No
use use that price as fair use that quoted price as fair
valuation value (with the value (with the relevant
technique relevant adjustments) adjustments)
disclosure
Disclose information that helps users assess both of the
following:
for assets and liabilities measured at fair value on a
recurring or non-recurring basis after initial
recognition:
– the valuation techniques
– the inputs used
13.93(d))
Thank You
Questions and
Discussion