IND As 113 -9 FAIR VALUE MEASUREMENT

BY CA PRANK THAT
FR / SFM -

CA FINAL

MIO -

7002630110 -
IND AS113-FAIRVAll.lt#--AuREM-NT
f- VALUE IS A MARKET BASED
AIM MEASUREMENT ,
NOT
Ind As 113 not applies to Measurement and Disdoswhl AN ENTITY SPECIFIC MEASUREMENT .

of fair value in relation to ?

What is fair value ?
a) Shore Based Payment thhns action find )
AS 102

fail ✓ slue is the price that would be

transaction lend 102)
b) leasing A -

deceived to sell the Asset oh ,

Exit Price

c) Inventories measured at NRV (9nA As 2) and -

paid to transfer a
liability Exit Price
value in use land As 36 )
-

in an orderly Hansaction No stress sale on

liquidation sale

D. isclosudl.li#him
-

between nrhhket participants .

Knowledgeable ,
Unrelated

parties , No stress force /

a) plan Assets measured at fair value rd As 19 ) -

at the measurement date .

b) Assets for ahicn Recoverable Ament is fair Hue toy -

Undercurrent Malket conditions .

cost of disposal as Pa Ind A 36

-

Blsheet
Examples of items where Ind As 1lb Applies
PPE ( Real" model)

a) value bolt to sell Ind kilo 5 Intangibles ( Reml model )

"
Fair tell as Required in

financialAssets CFVTPL → Equity / Debt

)
b) fail value through profit / toes or fail value through financial Duets ( FVTOCI ) → " "

other comprehensive Income as Required in India

10g financial liabilities Biological Assets lfv -
cts )

Inventoried
Nelerhled Ming Revaluation
PPE Hnd ) Investment Property Model 16
.
Plan Assets
lost model )

d) Biological Assets marked at fair Mke Hnd Asu) NCA Held for sale ffv -
LTD
)
Assetitywi%ue .

UNÉNT
fair value Measurement takes into Account the
Chaehcteeistic of the Asset or liability ÷ An Asset or a
liability is aggregated on
disaggregated
FOR RECOGNITION OR FOR MEASUREMENT
a) The condition of the Asset
Ind A 1B descaibes How to Measure fair value , not
b) The location of the Asset what is
being measured at fair value -

4 Restrictions on sale or use .

0 thee Ind As specify fair bike Measurement
whether
( Restriction or condition
Relating to Asset which considers -

a) An Individual Asset or a liability .

Can affect future Economic Benefits them the 6) Group of Asset or a liability
.

Abel need to be considered ,

-
but certify specific
Restriction should not be taken into account The unit of Account Dal Asset/ liability shell be determined
as it won't affect other market participants -

) as per Relevant Ind As that requires ok Permits fair

value measurement
.

pyesthictionstocomideeinfairane PRINCIPAL MARKET / MOST ADVANTAGEOUS MARKET

A. Asset / liability specific Restriction -1 YES A fair value Measurement transaction

^

Assumes that to
B. Entity specific Restrictions -1 No
sea the Asset on transfer the
liability takes place
-

either in ÷

a) In the Principal market for Asset / liability .

b) In the Absence of Principal Mhlket , in the Most

Advantageous Mallet for Asset Ici ability .
 I

A. Phincipalihlnhket MA NTS

Market -
which is Normally the Place in which
the Parties which eventually transacts the Assets / liabilities
ASSETS / LIABILITIES transacted with highest
Ahl
being
-

They should be Independent and not a belated party

volume with high level of Activities competing with -
The parties should not be under
any stress at force
other market available for similar transactions to enter into these transaction
any
.
^

All Parties should have Reasonable and sufficient Information

NOTÉ about the same
-
.

if there is Principal Mallet ,

the price in chat
malket must be used even if the prices in other TRANSACTION
malted -

all more
advantageous because the principal
market is the most liquid Mallet .

Transaction lost all not aAsset chdacteristic

of an

OR a liability , but a chalhetliistic of the transaction .

Transaction lost do not include TRANSPORT cost .

B.
Mostdduantageowsalalket
TRANSPORT adjusted while fair
cosy
determine
are

Market which eithll MAXIMIZES the Amount to be value .

Received when sells Asset MINIMIZE the

entity an or

Amount to be paid while

transferring the
liability .

Market A
-
Mallet B
-
Market
sale proceeds 500 Ago 520
1207 5)
43¥
C) transportation lost

÷E,
selling
lost COI
at

465-faihn.tt?!Y-qgo
⇐
_

B = 960 ,
c = 485
,

MARKET A is more
Advantageous
, fair Hue=48¥
APPLYING FAIR VALUE RULES ON NON financial ASSETS AU Restrictions specific to ANY MARKET PARTICIPANTS would
( NON FINANCIAL ASSET ÷ BUILDING MACHINERY , INTANGIBLE
,
not be 6mi deed while
finding out fair value of the financial
ASSETS BIOLOGICAL ASSETS ) Asset .

- In the Absence of potential best use which is not

easily available ,
its wheat use would be considered
as best old .

In Case of financial Melts , Don't Check Highest

and
,÷÷?%nd
A. Highest Best use .

¢ best use is a valuation concept used

to value many non financial Asset ( e.g. Real Estate
-

the highest and Best use of financial Abet B. VaÉÉ

i

a non

must we PHYSICALLY POSSIBLE , LEGALLY PERMISSIBLE AND fair value measurement of Nan financial Asset

FINANCIALLY FEASIBLE Should be based on either ¥

a) At stand Alone Basis .

a) Physically Possible ÷ Physical characteristics of the heat b) In Combination with other Assets .

II. g. location on size of a property )

mutant standard beguines to use best use blue if such Man
b) legally Permissible ! legal restrictions on use of the asset financial Asset is used in Combination with other Asset
leg .

zoning regulations applicable to a property ) and it is demonstrated that such Combination is widely
used by other market participants also in order to find
c) #inaneially feasible ? Generates adequate Income on Cash best use for the Non financial Asset -

Flows to produce Investment In .

The concept emphasis that one has to define its beet Prairie
UK which makes Dan financial Asset separate balm any
specific entity who would like to use each asset in

specific purpose which may not be

their own
ae
may
its best use -
 →
•
Evigan .

UNIBSÉRABEINPS ÷ Inputs for which market data

XP PLYING FAIR VALUE RULES LIABILITIES
to AND
best
AN ENTITY 'S OWN EQUITY INSTRUMENTS .
all not available and that all developed using
information available about allumption that malted -

A bail value Measurement assumes that financial al participants would use when
pricing the asktw liability .

won financial liability on an entity 's own equity instrument Unobservable Inputs may include Reporting Company 's
E- g.
equity interests issued as consideration in a Own data adjusted for other available Information
,
-

business combination ) is transferred to a market E. g. Internally generated financial forecast -

Participants at the measurement date -

Many a times a
liability or an equity instrument of air
.

equity being transferred to some

is other market ,
A. when liability and Equity BY hhen liability and Equity
participants as part of a transaction e.
g. a business Instruments all held by other Instruments are not held by
where certain liabilities on poetics Assets other pasties as assets
combination etc .

equity as .

instruments are
being issued in consider of sink

Quoted Price
.

acquisitions .
it Direct .

When these ale not held by

othll parties , then valuation
The standard specifies an assumption that liabilities Kil If Direct Quoted Price not
technique from the perspective
and equity instruments
for so transferred will remain available , then
entity shouldliabilities
use
of a market participants that
outstanding on the date of measurement -
identical Price of similis owes the liability / issued equity
Instruments held by Mallet
on
equity would be used .

Participants
,µµdfÉ
as an heat
If Direct Quoted Price are not available , standard
Prescribes to use ALL
OBSERVABLE INPUTS And µ
Present
minimize any UNOBSERVABLE INPUTS -

a) Quoted price of such allll

-

incomeftlproalh -7 value
should be used .

of future Cash flows at

Earnings .

OBSERVABLE INPUTS .

÷ Inputs that all develop using b) if qualia price not available ,

maluet data ,
then information
as publicly available then observable inputs Can be used .
Market Approach -

Quoted price
about allnel events of Imams actions and that webbed (c) In Absence of observable inputs of similar liabilities 0h Guity
-

, ,

assumption that malted participants would use when -

valuation techniques such as instruments held by other parties
↳
Pricing the Hut al liability E.
g. stock Exchanges ,
whets
µ obshnthdn
oemaehet be used as
.

approach
.

may
.

Brokered Malkets Dealer Makers etc )

Yuen ftp.n
.

,
 APPLY 1-FAtRAEREFNNA.SE?s

A- HIGHEST AND BEST USE

B. VALUATION PREMISE ( DISCUSSED IN CASE OF NON FINANCIAL

ASSETS )
f.
g.
Valuation of single shakes.
or
GM of
shakes .

C.IO Consider Reiterations on financial Assets

①
.

a) liquidity Discount
b) Non
Controlling Stake Discount

Illustrations

in

If Quoted price is not available .

standard prescribes to

use ALL OBSERVABLE INPUTS and minimize any

UNOBSERVABLE INPUTS .
Hh UALUEAt-N.ME COGNITION ENTRY PRICE VALUATIONTELHNIQU.ES# Market Approach Income appdoalh
-

, ,

lost Approach )
When an that is acquired ol liability is assumed in an
a) Mallet Approach
exchange transaction , the transaction price is The Mamet approach uses prices and other relevant
the price paid
to acquire the asset oh teceiued to assume the liability . information generated by mhlket transactions involving
identical or comparable ( similar assets liabilities or ,
a

In Contrast rail value of the Asset / liability should be group of assets and liabilities bum as business
.

EXIT PRICE '

Valuation techniques often uses market multiples derived

In many cases transaction price win foie value from a set of lom Parables The selection of the appropriate
equal the .

multiple within the

mange Melvins judgement ,
considering
But the transaction price might not represent fail qualitative and quantitative factors .

value of
Asset / liability at initial
recognition if any
of the
following conditions exist .
÷

a) The transaction is between RELATED PARTIES

u

b) b) I
"°Ñf¥MYÑÉnt
The transaction takes place under DURESS on the

seller is forced to accept the price ( stress sale) value of all future earnings from
entity whose fail value evaluated on in
being
an are

c) The makket in which transaction takes place is other words all future cash Flows to be discounted
different from the Principal Market for the most at whereat date to get foie value of the Asset /liability
.

Advantageous malket ) Assumption to the future cash flows and an appropriate

views
discount mate would be based on other market participants
.

d) The of Account Represented by the that action

unit

price is different from the unit of account for c) cogfappmoa.gl Replacement lost Approach )
the asset al liability measured at foie value .
This method describes how much lost is required to
asset / liability in order to make it in
replace
existing
condition
working
.

a
INPUTS TO VALUATION TECHNIQUES .

( FAIR VALUE HIERARCHY )

AM$Ñ
-

in which
The
hierarchy has been categorized 3 levels
are based on the level of inputs that are
being used
to foie values
find out such .

LEVEL1INP

Quoted Paice in ACTIVE MARKETS for IDENTICAL

assets or liabilities .

It shall be used without adjacent to measure

foie value whenever available .

The principal malted -

lol most advantageous Mallet in the .

Absence of principal Mahut ) must be town'd end for

fair value
detaining
.

The Entity Should have access to that wallet

.

In Certain Situation ,
a quoted price in an active
market might not
faithfully represent foie value of
asset ol liability , such as when significant events
occults on the measurement date but after the
close of trading
In these situation , Companies should ADJUST the

Quoted price to incorporate new information into fair

valve measurement
.

However ib Quoted price is adjusted , it oui be

considered level 2 Inputs
.
 he
uEh2INP E✗AMDLES_
Inputs other then quoted price included within level L
either
that are observable for the asset al liability , .

directly or
indirectly -

Level2Inpatsi-nundethebolloa.in#

a) Quoted price foe SIMILAR ASSETS OR LIABILITIES in active

markets .

b) Quoted Price bae identical / similar assets ae liabilities in

markets that are not active .

c) Inputs other then Quoted price that all OBSERVABLE

for the asset al liability .

""Ñ¥Interest mates and

yield Curves observable .

6) Implied volatile ties ( options )

c) Credit spreads .

d) Mallet loorihobolhted Inputs .

 ✓3IN
he S IS Quoted Alice bolan Identical item in an active market available

Level 3 Inputs an UNOBSERVABLE INPUTS for the Asset

0h
liability
.

Unobservable Inputs Shell be creed to measure fail value to YES NO

the extent that Relevant observable inputs are not available

Is the price to be adjusted Are there
significant
any
Unobservable Inputs shall leflect the assumption unobservable Inputs
'
that melted
-

would use when pricing the Asset/ liability including

assumption about fish . NO YES

A level 3 Input would be financial boeecest ( E-g. of cash Level 1 Input NO YES
Flows on Profit or loss
) developed using -
the
entity 's own

data , if Aide is no reasonably available information that

strong Are there any significant Level 2 Input Level 3. Input
indicates usage of different assumption market participants unobservable Inputs
by
-
-

Average weak

NO YES

LEVEL 2 INPUT LEVEL 3 INPUT

Average weak
 %
og II it Id I I %
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,

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