- 10 Marks
CR – May 2021 – L3 – Q4b – Fair Value Measurement (IFRS 13)
Explain fair value hierarchy under IFRS 13 and compute valuation for Bakatari Plc’s assets.
Question
Bakatari Plc is a public limited company that is reviewing the fair valuation of its assets in line with the provisions of IFRS on fair value measurement.
The company has assets that are traded in different markets and is uncertain as to which valuation to use. The assets have to be valued at fair value under International Financial Reporting Standards. Bakatari Plc., currently only buys and sells the assets in market ‘C’.
The data relating to the assets are set out below:
| Market | Market A | Market B | Market C |
|---|---|---|---|
| Volume of market (units) | 12 million | 6 million | 3 million |
| Price per unit | N19 | N16 | N22 |
| Cost of entering the market per unit | N2 | N2 | N3 |
| Transaction cost per unit | N1 | N2 | N2 |
Required:
i. Explain the three-level hierarchy for fair value measurement used in IFRS 13. (6 Marks)
ii. Discuss with relevant computations how Bakatari Plc should value the above assets under IFRS 13. (4 Marks)
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