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LEARNING OBJECTIVES 1. 2. 3. 4. #. Explain the reasons for the introduction of IFRS 13. Describe the basis for the determination of fair value. Describe the three valuation methods for the fair value measurement under IFRS 13. Explain the three tier fair value hierarch! applied to the valuation techni"ues. Describe the $eneral disclosure re"uirements.
F a ir / a lu e + e a su re m e n t
D e fin itio n s
. a sis o f F a ir / a lu e + e a su re m e nt
/ a lu a tio n ( e c h n i" u e s
F a ir / a lu e % ie ra rc h !
In c o m e * p p ro a c h + a r, e t * p p ro a c h - o st * p p ro a c h
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1
1.1
1.2 1.3
1.4
1.#
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8e9
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2
2.1
8b9
8c9 8d9
8e9 8f9
2.2 2.3
From the above definition4 it can be seen that fair value under IFRS 13 is a mar2et3 )ase# measurement4 n!t an entit+3spe$i"i$ measurement. (he definition of fair value "!$uses !n assets an# lia)ilities because the! are a primar! sub2ect of accountin$ measurement. In addition4 this %&FRS shall be applied to an entit!As o3n e"uit! instruments measured at fair value.
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%
3.1
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3.2
E,ample 1 *n asset is sold in t3o different active mar,ets at different prices. *n entit! enters into transactions in both mar,ets and can access the price in those mar,ets for the asset at the measurement date as follo3s7 Mar2et 1 5 2< 839 829 21 Mar2et 2 5 2# 819 829 22
If mar,et 1 is the prin$ipal mar2et for the asset 8i.e. the mar,et 3ith the $reatest volume and level of activit! for the asset94 the fair value of the asset 3ould be measured usin$ the price that 3ould be received in that mar,et4 after ta,in$ into account transport costs is 8C2< B C29 C24. Transa$ti!ns $!sts are i'n!re# as the+ are n!t a $hara$teristi$ !" the asset. If neither mar2et is the prin$ipal mar2et for the asset4 the fair value of the asset 3ould be measured usin' the pri$e in the m!st a#&anta'e!us mar2et. (he most advanta$eous mar,et is the mar,et that ma,imi6es the am!unt that (!ul# )e re$ei&e# t! sell the asset4 a"ter ta2in' int! a$$!unt transa$ti!n $!sts an# transp!rt $!st 8i.e. the net amount that 3ould be received in the respective mar,ets9. .ecause the ma,imum net am!unt that the entit! 3ould receive is C22 in +ar,et 24 the fair value of the asset 3ould be measured usin$ the price in that mar,et 8C2#94 less transport costs of C24 resultin$ in a fair value measurement of C23. *lthou$h transaction costs are ta,en into account 3hen determinin$ 3hich mar,et is the most advanta$eous mar,et4 the price used to measure the fair value of the asset is not ad2usted for those costs.
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7
4.1
Valuati!n Te$hni*ues
/aluation techni"ues should be used 3hich are appropriate to the asset or liabilit! at the measurement date and for 3hich sufficient data is available4 appl!in$ the fair value hierarch! to ma,imi6e the use !" !)ser&a)le inputs as "ar as p!ssi)le. Three &aluati!n te$hni*ues 8a9 8b9 8c9 In$!me appr!a$h B e.$. 3here estimated future cash flo3s ma! be converted into a sin$le4 current amount stated at present value. Mar2et appr!a$h B e.$. 3here prices and other mar,et related data is used for similar or identical assets4 liabilities or $roups of assets and liabilities. C!st appr!a$h B e.$. to arrive at 3hat ma! be re$arded as $urrent repla$ement $!st to determine the cost that 3ould be incurred to replace the service or operational capacit! of an asset.
4.2
4.3
M!re than !ne &aluati!n te$hni*ue ma! be use# in helpin' t! #etermine "air &alue in a particular situation. ;ote that a $han'e in &aluati!n te$hni*ue is re$arded as a $han'e !" a$$!untin' estimate in accordance 3ith I*S D 3hich needs to be properl! disclosed in the financial statements.
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8
#.1
0evel 2 inputs
0evel 3 inputs
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E,ample 2 Examples of inputs used to determine fair value include7 Asset !r lia)ilit+ Le&el 1 Le&el 2 E,ample
E"uit! shares in a listed )nad2usted "uoted prices in an active entit! mar,et Finished $oods inventor! at 6rice paid b! retail customers a retail outlet 0icence ac"uired as part of a (he ro!alt! rate contained 3ithin the business combination 3hich contract as recentl! ne$otiated 3ith an unrelated part! -ash $eneratin$ unit /aluation multiple from observed transactions involvin$ similar businesses 6rice per s"uare metre for the buildin$ from observable mar,et data4 such as observed transactions for similar buildin$s in similar locations *d2ustment made to a mid mar,et non bindin$ price usin$ data that cannot be directl! observed or corroborated 6rofit or cash flo3 forecast usin$ o3n data
Le&el %
4<
4:
:
<.1
<.2
<.3
For assets and liabilities measured at fair value and classified as 0evel 34 a reconciliation of 0evel 3 chan$es for the period is re"uired. In addition4 companies should report an anal!sis of ho3 0evel 3 chan$es in fair value affect total $ains and losses and their impact on net income. (he follo3in$ is an example of this disclosure.
4D
;uesti!n 1 (he International *ccountin$ Standards .oard 8I*S.9 issued IFRS 13 Fair /alue +easurement in 2>11 and this is li,el! to be relevant to entities 3ho prepare financial statements 3hich include the impact of measurements based upon fair value. Re*uire#< 8a9 8b9 8c9 Explain 3h! the I*S. has introduced IFRS 13 Fair /alue +easurement. 8# mar,s9 Explain ho3 fair value is to be determined in accordance 3ith IFRS 13. 81# mar,s9 Explain the nature of the supportin$ disclosures re"uired b! IFRS 13. 8# mar,s9 8(otal 2# mar,s9
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