IFRS 13 – Fair Value Measurement

Nufail Naleem
Introduction
• IFRS 13 fair value measurement was developed with the objective to
have a formal set of standards when a company is planning to
measure assets or liabilities rather than having fragmented
approaches
• IFRS 13 does not include IFRS 2 Share based payment and IFRS 16
Lease
Fair Value Definition
• The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between the market participants on measurement date
• The transaction should not be forced, the market participants needs to be
knowledgeable of
- Condition
- Locations
- Restrictions
• The fair value can be measured through
- Market approaches
- Cost approaches
- Income approaches
The price
• When determining the price the observable data from the active
market should be used, active market is where the transactions for
assets or liability occur
Price valuation
Level 1 – Quoted Prices from identical Share price
assets in active market /Gold

Level 2 – Quoted prices for identical

assets in less active market Land

Level 3 – No Observable Data Mobile App, Vaccine

Markets
• Principal Market – Market with greatest activity for Assets and
Liabilities
• Advantageous market – the market where the net amount of receipt
from sales are high (transaction cost needs to be deducted when
determining the advantages market)
Explanation
Markets M1 M2
Price 26 25
Transaction Cost (3) (1)
Transport Cost (2) (2)
Net Price 21 22

(a) Assume Market 1 is Principal Market calculate

the fair Value

(b) Assume there is no principal market, determine

advantageous market and fair value
Non Financial Assets
• These assets are generally not issued by financial institutions such as
banks or stock markets. Example Property plant equipment,
intangible assets
• IFRS 13 clearly states that when determining the fair value of non
financial assets, the highest best use should be considered
- Physically possible
- Legally permissible
- Financially feasible
• IFRS 13 states that an assets can be valued if it is legally permissible
irrespective of legal approval