Professional Documents
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1. Introduction
Prior to IFRS 13 being issued, the manner in which the fair value of assets, liabilities
and an entitys own equity instruments was measured varied between the different
standards. Some standards gave limited guidance and others were very detailed with
the result that the treatment in practice has varied, which has reduced comparability
among entities. IFRS 13 remedies this situation by defining fair value, setting out a
framework for measuring fair value and requiring disclosures about the fair value
measurement.
The scope of IFRS 13 p.5-8 (i.e. whats included & whats excluded).
3. Definitions
Refer to IFRS 13 appendix A.
Highest and best use is achieved on a stand-alone basis, refer to para B3 for a
description of the application of this concept.
4.3 Application to liabilities and an entitys own equity instruments
4.3.1 General principles
Refer to IFRS 13 p.34-41, illustrative examples 10-13.
4.3.2 Non-performance risk
Refer to IFRS 13 p.42-44, illustrative examples 10-13.
Restriction preventing the transfer of a liability or an entitys own
equity instrument
Refer to IFRS 13 p.45-46, illustrative examples 11 & 13.
4.3.3
Level 3 inputs:
Refer to p.86-90
5. Disclosure
IFRS 13 p.91 requires an entity to disclose information that helps users of its
financial statements to assess both:
for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the statement of financial position after initial recognition:
o the valuation technique; and
o the inputs used to develop those measurements.
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.
Refer to IFRS 13 p.92 99 and the illustrative examples for further detailed
disclosure.
Example
Question:
Zlotnik Limited (Zlotnik) is a company listed on the JSE Securities Exchange. The
company requires advice regarding the measurement and disclosure of the following
items in its group annual financial statements:
1.
Shortly before the financial year end, the company purchased a patent for
New-Way crushing machinery which has been developed by two
university engineering professors. An amount of R25 million was paid for
this intellectual property in a deal negotiated at arms-length with the
sellers. The Zlotnik directors estimate that the net present value of the
profits the company would have lost if the patent were exploited by a third
party, amount to R45 million, as the products to which the patent relates
would create direct competition with Zlotnik thereby reducing the profits of
the company. Zlotnik will not use the patent the acquisition was simply to
prevent anyone else using it. There will be no income streams flowing
directly from these assets, and thus the valuers appointed by the Zlotnik
group have valued the patent at R nil. The accountant has accordingly
impaired the patents to R nil in the financial statements.
2.
3.
4.
Zlotnik issued R100 million debentures two year ago which are redeemable
in three years time. The debentures have always been classified as
financial liabilities at fair value through profit or loss. In terms of the
debenture trust deed, the debenture holders are entitled to demand
immediate payment if the debt : equity ratio of Zlotnik per the year-end
balance sheet is over 50 %. At year-end, the ratio was 51 %. The
consultants appointed by Zlotnik have valued the debentures at R50 million
based on the current estimated realisable value of the debentures.
Fair value measurement: Page 5 of 6
School of Accountancy, University of the Witwatersrand, 2013
2.
2.1
2.2
3.
3.1
3.2
3.3
4.
4.1
4.2
New-way patent
This should be included in the financial statements at R25 million, as that is
the fair value determined in an arms-length transaction.
IFRS 13 requires that this amount be reflected and not the value specific to
Zlotnik.
Spitfire
In terms of IFRS 13, an asset should be valued in its principal market and it
is appropriate to take into account transport costs to transport the asset to
the market.
Thus, the value is R12.5 million (1m x 13 = R13m R500 000
transportation costs).
Computer stock
These should be valued at R110 million, being the cost to the company
plus the costs of conversion, in terms of IAS 2.
It is not necessary to deduct the selling costs, in terms of IAS 2.
IFRS 13 does not apply to inventory.
Debentures
These should be included in the group financial statements at their full face
value of R100 million.
IFRS 13 requires that where liabilities have a demand feature, these be
included at that amount (despite the fact that these may carry a different
market value).