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 fair value is the exit price from the perspective of market participants who hold the asset or owe the liability at the measurement date. It is based on the perspective of market participants rather than the entity itself, so fair value is not affected by an entity’s intentions towards the asset, liability or equity item that is being fair valued.

A fair value measurement requires management to determine four things: the particular asset or liability that is the subject of the measurement (consistent with its unit of account); the highest and best use for a non-financial asset; the principal (or, in its absence, the most advantageous) market; and the valuation technique. [IFRS 13 B2].

IFRS 13 addresses how to measure fair value but does not stipulate when fair value can or should be used.

Introduction
MEASUREMENT

Measurement introduction
Identify market participants
Identification of markets and transactions
Estimating fair value
Fair value measurement
Inputs
Relationship of Growth, ROIC, and Cash Flow
The costs of maintaining a measurement method
Approaches to valuation for unquoted equity instruments
Valuation premise

ACQUISITIONS

Calculating the value of an acquisition
Gather company and transaction data
Evaluate prospective financial information (PFI)
Analyze information obtained
Measure and recognize consideration transferred
Measure contingent consideration
Recognise assets and liabilities acquired
Fair value of tangible assets

WACC, IRR and WARA

The transaction

Common elements of customer relationships
Customer relationships valuation
Controlling Non-controlling Interest

Intangible valuation approach
Discount rates for intangible assets
Valuation of intangibles on acquisition
Goodwill or gain from a bargain purchase
Measure components in an acquisition
Valuation techniques

Approaches to valuation for unquoted equity instruments
Market approach
Income approach
Adjusted net asset method

Cash-flow-based measurement techniques
Discounted cash flow

Value in use measurement
Cost approach
Relief from royalty
On demand technology – With and Without method
Capitalisation of earnings
Royalty avoidance approach

Fair value hierarchy
DISCLOSURES

Fair value disclosures

Example:

Revaluation model: Nuclear power plant and decommisioning liability