Ifrs 13 Fair Value

1) In a level 1 measurement, the price is from an active market quote and those quotes would tend to be a range with emphasis on the high / low figures Think of the active market where shares are being bought and sold on a stock exchange The low price quoted represents the amount that you could expect to receive from a sale of those shares whereas the high price is the amount that you would have to pay The difference in the prices is known as the "jobber's turn" and is similar to (but not the same as) the transaction costs In a level 2 measurement, there are no such quoted active market prices so there is no spread of prices against which to measure. Pick a price and take transaction costs into account Does that explain the logic? 2) Here's the definition of "Most advantageous market" - The market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs It would seem from that that transaction costs must be taken into account 3 and 4) You would first consider whether there was a active quoted market price available against which to measure. Failing that, you would consider a non-quoted active market if such existed Failing that, you're into level 3 where "...using the best information available in the circumstances" is used as a last resort OK?

Many thanks for your advices...I think i have no problem wirh 1&2 but i have one more question: There are 3 valuation techniques: 1-market approach 2-cost approach 3-income approach What are the differences between these 3 approaches and those 3 inputs? Thank you in advance

Is this not enough for you? "market approach – uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. a business) cost approach – reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost) income approach – converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts." This is an extract from the IASPLUS website - it's a wonderful source of information concerning accounting standards!

Thanks alot

You're welcome

It's not always an easy nor precise exercise to arrive at "cost" IAS 2 states 'The standard cost and retail methods may be used for the measurement of cost, provided that the results approximate actual cost. [IAS 2.21-22]" It actually uses the word 'approximates' indicating that precision is not always possible. This is in line with the whole of financial reporting and auditing where 'near enough is close enough' "What does reasonable profit margin mean here?" It means that, where an entity regularly achieves reported gross profitability of, say, 22% then inventory valuation can be calculated as inventory selling price x 78% If that same entity regularly achieves 22% gross profits, then it would be UNreasonable to deduct only, say, 14%

Yes ... but that will never be asked in an exam - it's an F3 area and highly improbable to appear in these later exams except by way of the examiner specifying, for example, that at the date of acquisition the inventory of the acquiree was undervalued by, say, $4,000

You're welcome

Hi Mike! I'm confusing that the difference between value in use and FV from income approach FV is price that would be received to sell assets But income approach same to value in use of asset Please explain this for me Thank you, sir

Hi, The income approach is very similar to the value in use of an asset. Thanks

@P2-D2 said: Hi, The income approach is very similar to the value in use of an asset. Thanks

Thank sir, but I don't understand that. FV is price that would be received to sell assets. Why FV is valuated by use asset It seem inconsistent Thanks for your help

Hi, In using the asset we will generate income, and so they two are very similar. We'd only use the income approach if the market based approach could not provide us with an appropriate fair value. Thanks