ifrs 13 fvm Flashcards
ifrs 13 scope
doesn’t apply on:
-share based payments
-inventory
-value in use
entity vs market based factors
entity based r discouraged, market factors r promoted
if restriction on investor only then entity based
if restriction is characteristic of the asset, then market based factor
state the rule
fair value is defined as the exit price that would be received to sell an asset or paid to transfer a liability in an ORDERLY transaction between market participants at measurement date.
-fair value is a market based measurement, not entity specific measurement- main message
3 levels of inputs are:
level 1:
-quoted prices in active market of IDENTICAL goods (eg. stock market)
level 2:
-observable prices of in inactive market of IDENTICAL goods
-observable prices in active market of SIMILAR goods
level 3:
-unobservable inputs based on management assumptions. (PV of future CF)
what is orderly transaction?
not related party
not forced
not urgent
parties must have knowledge of goods
unit of AC must be appropriate (eg. 70% holding is not equal to shareprice, as it includes control also so worth more)
which market
always go for principal market aka one with highest level of activity
-if no access, then go for most advantageous market
steps for advantageous market
-first pick market with highest net benefit (SP- transport cost - transaction cost)
-calculate fair value (S.P- transport cost)
why must transaction cost be ignored in calculation of FV?
because its an entity based factor
how to measure unlisted shares
-market approach (identical/similar instruments of investee)
-adjusted net asset approach
-income approach (PV of future cash flows)
disclosures
required for level 3 in detail.
u must disclose assumptions u have taken for future cash flows.
sensitivity analysis disclosure must also be given
-change in levels must be disclsoed
-diff disclosure requirements for recurring and non recurring fair value items.
fv of non financial assets
-more than 1 use is possible
-standard says go for highest and best use, even if u are not using according to that use.
3 factors must be considered for best use
-legally permissible
-physically possible
-financially feasible
fair value of liability
1-if active market available, use quoted price
-2if ur liability is asset of somebody and asset has active market, then use that asset price with some adjustments
3- PV of future cash flows using sum of two rates
current market interest rate + entity’s own credit worthiness
eg. 10 + 5 = 15%
1 question of ifrs 13
pls review
property market application
investment property is unique, not traded regularly like shares. it is unlikely to find level 1 data of identical assets, so measurements r likely to be categorised as level 2 or level 3 valuations
level 2 may be: sale price per square meter for properties i similar location, market rent, property yields from latest transaction
level 3: management estimates, cash flow forecasts using entity’s own data, assumptions of future development of parameters like rental incomes
