Académique Documents
Professionnel Documents
Culture Documents
1
This material is the property of Department of Accounting and
Finance, CoBE, AAU.
Permission must be obtained from the Department prior to reproduction
Learning Objectives
At the completion of studying this chapter, you will be
able to:
Understand
Standards
Financial Instruments
Property, Plant and Equipment
Investment Property
Intangible Assets
IFRS 9
IAS 16
IAS 40
IAS 38
Agriculture
IAS 41
Business combination
IFRS 3
Assets
Cost
Cost
st
Intangible
Inv Property
Inventory
M
FV
or
Co
Ni l
CM
PP&E
Ni l
st
Co
Lo
w
er
so of
m C
e or
FV N
M RV
CM
CM or RM
or R M
Assets
FV pl
a
plan o n assets le
bligat
s
ion & s PUC
rules arbitrary
FV pl
an
obliga assets les
sP
tion &
arbitr UC plan
ary ru
les
s
lue les
a
v
r
i
a
F
to sell
s
t
s
o
c
s
ue les
l
a
v
r
i
Fa
sell
o
t
s
t
s
co
i
Fa
al
v
r
ue
VM
Biological
assets
or
F
Defined
Benefit
us
Financial
Etc
Am
Va
r io
Va
r io
us
Market participants are buyers and sellers in the principal (or most
advantageous) market who are:
Independent
Knowledgeable
perspective
application guidance: how to measure
fair value
point
application guidance: characteristic
of an asset or liability
Included in fair
value?
Transaction
costs
Transport
costs
Principal market
The market with the greatest
volume and level of activity for the
asset or liability
price
Total marketbased
volume for the
asset
490,000
60%
15%
500,000
25%
75%
550,000
15%
10%
No
Replicate a market price through a valuation
technique* (using observable+ and unobservable
inputs: Levels 2 and 3)
No significant unobservable
(Level 3) inputs =
Use of significant
unobservable
(Level 3) inputs =
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Valuation techniques
When determining fair value, an entity shall use
valuation techniques:
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21
continued
Valuation premise
Valuation premise
continued
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In this case, the highest and best use is determined from the higher
of:
a) The value of the land used in the manufacturing operation
b) The value of the land as a vacant site for residential use
Note that transformation costs (e.g., costs to demolish the
manufacturing facility) would be considered in the value of land as a
FV of a non-financial asset-Highest
and Best Use : test your
understanding
For example, at Sene 30 you are valuing your factories land use right.
Land rights with a similar factory of the same age, same condition
and same square area as yours are sold for Br. 7 million of which the
value of the factory is 4 million. At the same date a bare land
homogeneous(identical) with your factorys plot of land are sold for
alternate use for Br. 5 million. what is the highest and best use of
your land right?
Choose one
A. Br. 3 million
B. Br. 5 million
C. Br. 4 million
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D. Br. 7 million
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The facts are the same as Example 1, except that in this example
(fifteen years later), on 31 December 2015:
high-rise commercial development is now the highest and best
use for your land rights because the rapidly expanding financial
district of Addis Ababa has grown to the boundary of plots 899,
900 and 901.
Consequently, on 31 December 2015 Plots 899 and 901 each sold
for Br. 100 million.
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You own land use rights to Plot A that is zoned green beltwhich
prohibits the construction of buildings on that land.
Similar neighbouring plots with the same land use rights and subject to
the same restrictions sold recently:
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The highest and best use concept does not apply to financial
instruments
The unit of account for financial instruments in the scope of IAS 39
and IFRS 9 is typically the individual financial instrument
an exception, if certain conditions are met, IFRS 13 permits an
entity to measure the fair value of a group of financial assets and
financial liabilities with offsetting risk positions on the basis of its
net exposure (the portfolio measurement exception) (see
paragraphs 48 and 49 of IFRS 13).
Specific guidance for financial liabilities with demand features the
fair value of such liabilities cannot be less than the amount payable
on demand, discounted from the first date that the amount could be
required to be paid (see paragraph 47 of IFRS 13).
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39
Yes
Fair value =
observable
market price of
instrument
Yes
Yes
Fair value =
observable
market price of
Is there an observable
market price for the
instrument traded as an
asset?
No
Does somebody
hold the
corresponding
No
asset?
Fair value =
another valuation
technique
Level 2 or
3
Fair value =
another
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valuation
No
Disclosure
IFRS 13 requires extensive disclosure of sufficient information to asses:
Valuation techniques and inputs used to develop fair value
measurement for both recurring and nonrecurring measurements
The effect of measurements on profit or loss or other
comprehensive income for recurring fair value measurements using
significant Level 3 inputs.
Recurring fair value measurements are those presented in the
statement of financial position at the end of each reporting period (for
example, financial instruments).
Nonrecurring fair value measurements are those presented in the
statement of financial position in particular circumstances (for
example, an asset held for sale in line with IFRS 5).42
.
Disclosure
As the disclosures are really extensive, here, the
examples of the minimum requirements are listed:
Fair value measurement at the end of the reporting period
The reasons for measurement (for nonrecurring)
The level in which they are categorized in the fair value
hierarchy,
Description of valuation techniques and inputs used
And many others
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Questions or comments?
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