IFRS 13 The best Fair value fundamentals discusses the key concepts in the fair value standards, including the definition of fair value, inputs to fair value measurements, and the Read more
Leveraged buyout IFRS 3 best reporting – In corporate finance, a leveraged buyout (LBO) is a transaction where a company is acquired using debt as the main source of consideration. These transactions typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70 or 80 percent of the purchase price) and funds the balance with their own equity. Leveraged buyout IFRS 3 best reporting
1 The process and business reason
The use of leverage (debt) enhances expected returns to the private equity firm. By putting in as little of their own money as possible, PE firms can achieve a large return on equity (ROE) and internal rate of return … Read more
IFRS 2 Fair value of equity instruments granted – Share-based payment transactions with employees are measured with reference to the fair value of the equity instruments granted (IFRS 2.11).
The fair value of a equity instrument granted is determined as follows (IFRS 2.16-17):
- If market prices are available for the actual equity instruments granted – i.e. shares or share options with the same terms and conditions – then the estimate of fair value is based on these market prices. IFRS 2 Fair value of equity instruments granted
- If market prices are not available for the equity instruments granted, then the fair value of equity instruments granted is estimated using a valuation technique.
3 powerful capital maintenance concepts – There are three (or two a matter of definition) concepts of capital: a financial concept of capital (nominal maintenance and purchasing power maintenance) and a physical concept of capital. Under the financial concept, capital is defined as the net assets or equity of the enterprise, while under the physical concept, capital is defined as the productive capacity of the enterprise expressed in some physical units of measurement, as for example units of output per day.
The selection of the appropriate concept of capital by an enterprise should be based on the needs of the users of its financial statements. So, the financial concept of capital should be and mostly is used by the financial … Read more
Valuation of unquoted equity instruments – The three valuation approaches and techniques described in IFRS 13 are:
- Market approach, Valuation of unquoted equity instruments
- Income approach,
- Adjusted net asset method.
IFRS 13 does not prescribe a specific valuation technique, but encourages the use of professional judgment together with consideration of all facts and circumstances surrounding the measurement. These three different valuation approaches could be applied in determining the fair value of an unquoted equity instrument. However, regardless of the valuation technique used, the fair value measurement of those equity instruments must reflect market conditions at the investor’s reporting date.
The market approach uses prices and other relevant information generated by market transactions involving identical or comparable … Read more
Fair Value Measurement can present significant challenges for preparers of financial statements, particularly because it involves using judgment and estimation. Further, it is the market participant view that shapes fair value, so preparers need to monitor whether the valuation models and assumptions they use for financial reporting appropriately reflect those of market participants.
Fair Value Measurement under IFRS 13:
- defines fair value;
- sets out in a single IFRS a framework for measuring fair value; and
- requires disclosures about fair value measurements.
The definition of fair value focuses on assets and liabilities because they are a primary subject of accounting measurement. In addition, IFRS 13 is applied to an entity’s own equity instruments measured at fair value.
The … Read more