IFRS 13 Fair value measurement

Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available.

IFRS 13 Fair value measurement

IFRS 13 Fair value measurement Content

IFRS 13 provides a common framework for measuring fair value when required or permitted by another IFRS.

IFRS 13 defines fair value 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.’ [IFRS 13 9]. The key principle is that …

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IFRS 13 Fair value measurement
IFRS 17 Insurance Contracts

Fair value disclosures

The below illustrative disclosures are limited to financial assets and liabilities measured in accordance with IFRS 9. In many cases, insurers may have other balances that require fair value measurement disclosures in accordance with IFRS 13.

Fair value hierarchy

IFRS Link

Explanation

IFRS 13 73

The insurer categorises a financial asset or a financial liability measured at fair value at

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IFRS 13 Fair value measurement

Royalty Avoidance Approach

One method to determine the market value of Intellectual Property assets like patents, trademarks, and copyrights is to use the royalty avoidance approach (also known as Relief from royalty or Royalty Relief). This approach determines the value of Intellectual Property assets by estimating what it would cost the business if it had to purchase the Intellectual Property (IP) it uses

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IFRS 13 Fair value measurement

Controlling Non-Controlling Interest

Controlling Interest

A controlling interest can change the capital structure. When valuing a controlling interest, the valuator will generally (subject to the valuator’s purpose and standard of value) base the weighted average cost of capital (WACC) on the optimum capital structure or the average industry capital structure. In most cases, the optimum capital structure and the average

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IFRS 13 Fair value measurement

Capitalisation of earnings

The Capitalisation of Earnings Method is an income-oriented approach. This method is used to value a business based on the future estimated benefits, normally using some measure of earnings or cash flows to be generated by the company. These estimated future benefits are then capitalized using an appropriate capitalization rate. This method assumes all of the assets, both tangible …

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IFRS 13 Fair value measurement

Adjusted net asset method

This method is used to value a business based on the difference between the fair market value of the business assets and its liabilities. Depending on the particular purpose or circumstances underlying the valuation, this method sometimes uses the replacement or liquidation value of the company assets less the liabilities. Under this method, the analyst adjusts the book value of

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IFRS 13 Fair value measurement

Common Elements of Customer Relationships

When determining if a customer relationship asset exists, one should consider several elements that create that intangible asset.

Required Information

For a customer relationship asset to exist, it should have an informational component or factual information about the customer that is important and useful to the company.

This information may include such attributes as name, address, telephone number, email address,

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IFRS 13 Fair value measurement

On Demand technology – With and Without

The with and without method is used to separate one intangible asset with a significant value from other intangibles.  For example in case of the bringing new technology to the market, the value of the new technology can be estimated as follows:

Value of the (existing) business with new technology

-/-

Value of the (existing) business without new technology, where …

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IFRS 13 Fair value measurement

Relief from Royalty

The ‘Royalty Relief’ (also known as Relief from Royalty) method is based on the notion that a brand holding company owns the brand and licenses it to an operating company. The notional price paid by the operating company to the brand company is expressed as a royalty rate. The Net Present Value (NPV) of all forecast royalties represents the value of …

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IFRS 13 Fair value measurement
IFRS 3 Business Combinations

Valuation of Intangibles on Acquisition

THE CASE: Shockwave Corporation

  • Shockwave Corporation is the largest satellite radio provider in the country. Shockwave commenced operations five years ago when the government granted satellite spectrum licenses to four start-ups seeking to cultivate a then-burgeoning industry. Since that time, precipitated by the accelerating wireless data needs of telecommunication industry technology, the government has stated that it will not be
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