IFRS 13: Fair value measurement

Question 1

Defined fair value in terms of IFRS 13.

Answer 1

Fair value is defined as:

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

Question 2

Define what is a orderly transaction.

Answer 2

An orderly transaction is defined as:
- a transaction that assumes exposure to the market for a period before the measurement date

• to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities
• in other words, it is not a forced transaction

Question 3

What is the definition of principal market?

Answer 3

Principal market is defined as:
The market with the greatest volume and level of activity for the asset or liability.

Question 4

How is fair value measured:

Answer 4

FV for both the principal market and most advantageous market are measured:

Market price - transport costs.

Question 5

What is the definition of the most advantageous market?

Answer 5

The market that:
- maximizes the amount that would be received to sell the asset, or
- minimizes the amount that would be paid to transfer the liability
- After taking into account transaction costs and transport costs

Question 6

Provide general formula for determining the most advantageous market.

Answer 6

Market prices - Transport costs - transaction costs.

Question 7

IFRS 13: FV
In terms of non-financial assets define what is highest and best use.

Answer 7

The use of a non-financial asset by market participants that would maximize the value of:
- the asset or
- the group of assets & liabilities within which the asset would be used

Question 8

When assessing the highest and best use of a non-financial asset, what are the three key areas which must be considered?

Answer 8

• Whether usage is physically possible
• Whether the usage is legally permissible
• Whether the usage is financially feasible

Question 9

Define the term “entry price”.

Answer 9

The price to acquire an asset or received to assume a liability in an exchange transaction.

Question 10

Define the term “exit price”.

Answer 10

The price that would be received to sell an asset or paid to transfer a liability