What is the basis of valuation under IFRS 13?
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 (an exit price).
What 3 valuation approaches does IFRS 13 identify?
The three widely used valuation techniques cited by IFRS 13 are: market approach, cost approach, and. income approach.
What is the value in use of an asset?
The value in use of an asset is the expected future cash flows that the asset in its current condition will produce, discounted to present value using an appropriate discount rate. Sometimes, the value in use of an individual asset cannot be determined.
What are fair value reserves?
Fair value reserve represents the cumulative fair value changes, net of tax, of available-for-sale financial assets until they are disposed of or impaired.
How is fair value calculated under IFRS?
IFRS 13 indicates that an entity must determine the following to arrive at an appropriate measure of fair value: (i) the asset or liability being measured (consistent with its unit of account); (ii) the principal (or most advantageous) market in which an orderly transaction would take place for the asset or liability; …
How do you determine fair value?
It is measured using the same assumptions and taking into account the same characteristics of the asset or liability as market participants would. Such characteristics include the condition and location of the asset and any restrictions on its sale or use.
What should be included in value in use?
The value in use is calculated using the following steps:
- The future cash inflows and outflows from continuing use of the asset are estimated.
- The cash inflow from the ultimate disposal of the asset is estimated.
- These cash inflows and outflows are then discounted using an appropriate discount rate.
What is an example of value in use?
The value in use amount of a property may be more or less than its market value. For example, a land which is located at a place which is in the path of growth for a major project and is used as a small farm will have the value in use less than the market value.
Is fair value reserve distributable?
The recognition of changes in fair value may have an impact on distributable reserves. This is an area where there are often misunderstandings and the factsheet refers to available guidance that should be considered when determining what dividend a company should pay.
How is fair value calculated?
The fair value of an asset or liability is ideally derived from observable market prices of similar transactions. Fair value is calculated by looking at what a nearly identical item has already sold for. Assets are recorded at their current value on the date the value is calculated, not the historical cost.