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IFRS 13
Hello Mike and hope you are fine 😉My question is about IFRS 13.
As far as I learned from this IFRS, when we want to measure the fair value of an asset, we should first use level 1 , if level 1 it is not available then level 2, and if level 2 is not available then level 3!Now my question is so what are the benefits of those three ”valuation techniques” at all? I mean ”Market Approach”, ”Cost Approach” and ” Income Approach” ?
Is there any relationship between these 3 valuation techniques and those 3 levels ? And at last what should we do when we want to determine the fair value !? We should use one of those 3 levels or one of those 3 valuation techniques?
Kind Regard
I’ve already answered this! What have you done with my response? It’s apparently lost in the black hole that is my iPad screen 🙁
Here we go again 🙁
The three methods are ranked in preferential sequence. For first choice we would turn to the market approach and arrive at a fair value that way.
But that may not be available, so we’ll try the cost approach as a second best effort
But that too could be unavailable so, in that case, we’ll just have to apply the income approach
IF (and it’s a big IF) we could use all three approaches, we would no doubt finish up with three completely different valuations but, of course, we probably wouldn’t look at those other two approachs if the market approach we available
Similarly, we wouldn’t use the income approach where the cost approach was available even though the market approach wasn’t
Ok?
Hello Mike!
Thank you with your answer.So in fact :
market approach is Level 1,
cost approach is level 2,
and income approach is level 3
Yes ?Thank you in advance …
I know my “thank you” comment will make you again busy because you will reply it, but this can not prevent me to do so!
Thank you for your fast and clear answers to all my questions Mr Mike! 😉
Many Thanks ….You’re welcome, Yellow – but you won’t be welcome if you respond to this one!
Hi.
So what is the difference between fair value hierarchy and valuation method and when do we need to use this?You have driven Mike away – so this is Steve.
FV hierarchy and 3 valuation approaches wouldn’t really be examined in same question (I think)
IFRS 13 is VERY IMPORTANT because the levels are disclosed in the FS and shareholders use them.
The other stuff is academic waffly stuff, but here goes:
1. Cost approach – nothing to do with IFRS 13 – because IFRS 13 is about fair value
2. Market approach is like Level 1 or 2
3. Income approach is like Level 3Steve
So when we use share price of listed company to determine the fair value,we are actually using market approach.Is this correct?
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