Topic: Fair Value Measurement (IFRS 13)

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CR – May 2017 – L3 – Q6 – Fair Value Measurement (IFRS 13)

Identify the fair value hierarchies under IFRS 13 and distinguish between principal and most advantageous markets.

Question

The International Accounting Standards Board (IASB) aims at enhancing the guidance available for assessing fair value in order to increase consistency and comparability in fair value measurements and related disclosures. To this end, fair value measurements are categorized into a three-level hierarchy, based on the type of inputs to the valuation techniques used in IFRS 13. IFRS uses the terms principal or most advantageous market.

Required:

(i) What are the fair value hierarchies under IFRS 13? (3 Marks)

(ii) Distinguish between the principal and most advantageous market and state how price is determined in the principal market taking into consideration transport and transaction costs. (5 Marks)

Answer

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Tags: Fair Value, Hierarchy, IFRS 13, Market, Price determination
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L1 – SB – Q4 – Fair Value Measurement (IFRS 13)

Discuss fair value principles, principal market, and valuation adjustments under IFRS 13.

Question

a. Prior to the advent of IFRS 13, many standards such as IAS 16, IAS 38, IAS 40, and IAS 39 among others required the use of fair value. These various requirements have been harmonized with the introduction of IFRS 13 Fair Value Measurement.

Required:
Define fair value in accordance with IFRS 13. (2 Marks)

b. One of the companies formerly operating in Nigeria that had recently relocated its operation to Ghana as a result of the challenging business environment in Nigeria has access to both Lagos and Accra markets for its product. The product sells at slightly different prices (in naira) in the two active markets. An entity enters into transactions in both markets and can access the price in those markets for the product at the measurement date as follows:

Market	Lagos (N’000)	Accra (N’000)
Sale Price	260	250
Transaction Cost	(30)	(10)
Transport Cost	(20)	(20)
Net Price	210	220

Required:
i. Briefly explain the principal market of an asset in accordance with IFRS 13 and determine what fair value would be used to measure the sale of the above product if the Lagos market were the principal market. (4 Marks)

ii. How is fair value determined in the absence of a principal market and what fair value would be used to measure the sale of the above product if no principal market could be identified? (4 Marks)

c. Megida Plc, a public limited liability company, has just acquired some hectares of land in Abuja earmarked by the government for economic empowerment programs. The land is expected to be used for commercial purposes. The fair value of the land if used for commercial purposes is N100 million, which includes tax credits.

Market participants consider alternative use for residential purposes, with an estimated fair value of N148 million, adjusted for:

Legal Costs: N4 million
Viability Analysis Costs: N6 million
Demolition Costs: N2 million
Planning Permission Uncertainty: 20% risk discount.

Required:
Discuss how Megida Plc should compute the fair value of the Abuja land with reference to IFRS 13 principles. (10 Marks)

Answer

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Tags: Fair Value, IFRS 13, Measurement Methods, Non-Financial Assets, Principal Market
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)
Series: NOV 2016

CR – May 2019 – L3 – Q7b – Fair Value Measurement (IFRS 13)

Advise on how to measure cattle in financial statements under IAS 41.

Question

Megida Plc. has ranches across the North where its cattle are reared. The company is quoted on the Nigerian Stock Exchange under the Agricultural Sector. The Financial Controller is unclear on how to measure its cattle in the financial statement according to IAS 41.

Required:
Advise the Financial Controller on how to measure the cattle in the financial statement of Megida Plc.

Answer

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Tags: Biological Assets, Fair Value Measurement, IAS 41, Livestock Valuation
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2019 – L3 – Q7a – Fair Value Measurement (IFRS 13)

Explain the accounting treatment for land, plantation, and harvested produce for Agbinye Farms as at March 31, 2018.

Question

Agbinye Farms operates many plantations across Nigeria. The Company recently acquired a freehold land in Benue for a total of N12 million. The trees were planted with the company incurring an operating cost of N4 million up to 31 March 2018, which is the company’s year-end.

The fair value of the plantation (excluding the land) was determined to be N16.4 million as at 31 March 2018. Based on management assessment, the company is expected to get produce from the plantation for a period of 20 years.

The first harvest was done during the year ended 31 March 2018, and the fair value of the produce was estimated as N2.5 million. The Company incurred a total cost of N600,000 to complete the harvest.

The company uses the cost model when possible.

Required:
Discuss the accounting treatment of the above transactions, showing clearly the amount to be recognised in the statement of profit or loss and the statement of financial position as at 31 March 2018.

Answer

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Tags: Agriculture, Biological Assets, Cost Model, Harvesting, IAS 41, Plantation Accounting
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2021 – L3 – Q4c – Fair Value Measurement (IFRS 13)

Advise on measuring the fair value of land for residential purposes in financial statements.

Question

Kantala Limited is a company based in Abeokuta, the Ogun State capital. It uses the revaluation model for its non-current assets. Kantala Limited has several plots of farmland which are unproductive.

The company feels that the land would have more value if it were used for residential purposes.

There are several potential purchasers for the land, but planning permission has not yet been granted by the Abeokuta Planning Authority for use of the land for residential purposes.

However, preliminary enquiries with the planning authority seem to indicate that the planning permission may be granted. Additionally, the Ogun State Government has recently indicated that some agricultural land should be used for residential purposes.

Required:

Advise Kantala Limited on how to measure the fair value of the land in its financial statements. (2 Marks)

Answer

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Tags: Agricultural Land, Fair Value, IFRS 13, Revaluation Model
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

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)

Answer

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Tags: Asset Valuation, Fair Value Hierarchy, IFRS 13, Valuation Techniques
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2021 – L3 – Q4 – Fair Value Measurement (IFRS 13)

Evaluate fair value relevance versus historical cost and explain valuation techniques under IFRS 13.

Question

a. Fair value is a market-based measurement, not an entity-specific measurement. It focuses on assets and liabilities and on the exit (selling) price. It also takes into account market conditions at the measurement date. In other words, fair value measurement looks at the amount for which the holders of an asset could sell it and the amount which the holder of a liability would have to pay to transfer it.

Required:

i. Discuss the view that fair value is a more relevant measure to use in corporate reporting than historical cost. (4 Marks)

ii. Discuss the valuation techniques in fair value measurement in accordance with IFRS 13. (4 Marks)

Answer

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Tags: Fair Value, Historical Cost, IFRS 13, Valuation Techniques
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L3 – Q4c – Fair Value Measurement (IFRS 13)

Discuss IFRS 13’s principles in computing fair value for land with alternative uses in Abuja.

Question

Megida Plc, a public limited liability company, has acquired hectares of land in Abuja designated for economic empowerment programs, intended for commercial use. The fair value of the land for commercial purposes is estimated at N100 million. Utilizing the land for commercial purposes would contribute to reducing unemployment and attract an annual tax credit, which is based on the lower of 15% of the fair market value or N10,000,000, at a 20% tax rate.

Megida Plc has also considered an alternative use of the land for residential purposes, a choice market participants may support. The fair value of the land for residential purposes is estimated to be N148 million, excluding certain associated costs such as:

Legal costs: N4,000,000
Project viability analysis: N6,000,000
Demolition of commercial structures: N2,000,000

Due to uncertainty in obtaining residential use permission from the Abuja Municipal Authority, market participants would discount the fair value by 20%.

Required: Discuss the way in which Megida Plc should compute the fair value of the Abuja land with reference to the principles of IFRS 13 Fair Value Measurement. (10 Marks)

Answer

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Tags: Fair Value, Highest and Best Use, IFRS 13, Market Participants, Risk Adjustment
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L3 – Q4b -Fair Value Measurement (IFRS 13)

Determine the principal market and fair value measurement for product sales in the Lagos and Accra markets.

Question

One of the companies formally operating in Nigeria that had recently relocated its operations to Ghana, as a result of the challenging business environment in Nigeria, has access to both the Lagos and Accra markets for its product. The product sells at slightly different prices (in naira) in the two active markets. An entity enters into transactions in both markets and can access the price in those markets for the product at the measurement date as follows:

	Lagos Market (N’000)	Accra Market (N’000)
Sale Price	260	250
Transaction Cost	(30)	(10)
Transport Cost	(20)	(20)
Net Price Received	210	220

Required:

i. Briefly explain the principal market of an asset in accordance with IFRS 13 and determine what fair value would be used to measure the sale of the above product if the Lagos market were the principal market. (4 Marks)

ii. How is fair value determined in the absence of a principal market, and what fair value would be used to measure the sale of the above product if no principal market could be identified? (4 Marks)

Answer

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Tags: Asset Valuation, Fair Value, IFRS 13, Most Advantageous Market, Principal Market
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L3 – Q4a – Fair Value Measurement (IFRS 13)

Define fair value as per IFRS 13, addressing the standardized approach to valuation.

Question

Prior to the advent of IFRS 13, many standards such as IAS 16, IAS 38, IAS 40, and IAS 39 required the use of fair value. These various requirements have been harmonized with the introduction of IFRS 13 Fair Value Measurement.

Required: Define fair value in accordance with IFRS 13. (2 Marks)

Answer

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Tags: Asset Valuation, Fair Value, IFRS 13, Liability Valuation
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2017 – L3 – Q6 – Fair Value Measurement (IFRS 13)

Identify the fair value hierarchies under IFRS 13 and distinguish between principal and most advantageous markets.

Question

Required:

(i) What are the fair value hierarchies under IFRS 13? (3 Marks)

(ii) Distinguish between the principal and most advantageous market and state how price is determined in the principal market taking into consideration transport and transaction costs. (5 Marks)

Answer

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Tags: Fair Value, Hierarchy, IFRS 13, Market, Price determination
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L1 – SB – Q4 – Fair Value Measurement (IFRS 13)

Discuss fair value principles, principal market, and valuation adjustments under IFRS 13.

Question

Required:
Define fair value in accordance with IFRS 13. (2 Marks)

Market	Lagos (N’000)	Accra (N’000)
Sale Price	260	250
Transaction Cost	(30)	(10)
Transport Cost	(20)	(20)
Net Price	210	220

ii. How is fair value determined in the absence of a principal market and what fair value would be used to measure the sale of the above product if no principal market could be identified? (4 Marks)

Market participants consider alternative use for residential purposes, with an estimated fair value of N148 million, adjusted for:

Legal Costs: N4 million
Viability Analysis Costs: N6 million
Demolition Costs: N2 million
Planning Permission Uncertainty: 20% risk discount.

Required:
Discuss how Megida Plc should compute the fair value of the Abuja land with reference to IFRS 13 principles. (10 Marks)

Answer

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Tags: Fair Value, IFRS 13, Measurement Methods, Non-Financial Assets, Principal Market
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)
Series: NOV 2016

CR – May 2019 – L3 – Q7b – Fair Value Measurement (IFRS 13)

Advise on how to measure cattle in financial statements under IAS 41.

Question

Required:
Advise the Financial Controller on how to measure the cattle in the financial statement of Megida Plc.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Biological Assets, Fair Value Measurement, IAS 41, Livestock Valuation
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2019 – L3 – Q7a – Fair Value Measurement (IFRS 13)

Explain the accounting treatment for land, plantation, and harvested produce for Agbinye Farms as at March 31, 2018.

Question

The first harvest was done during the year ended 31 March 2018, and the fair value of the produce was estimated as N2.5 million. The Company incurred a total cost of N600,000 to complete the harvest.

The company uses the cost model when possible.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Agriculture, Biological Assets, Cost Model, Harvesting, IAS 41, Plantation Accounting
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2021 – L3 – Q4c – Fair Value Measurement (IFRS 13)

Advise on measuring the fair value of land for residential purposes in financial statements.

Question

Kantala Limited is a company based in Abeokuta, the Ogun State capital. It uses the revaluation model for its non-current assets. Kantala Limited has several plots of farmland which are unproductive.

The company feels that the land would have more value if it were used for residential purposes.

There are several potential purchasers for the land, but planning permission has not yet been granted by the Abeokuta Planning Authority for use of the land for residential purposes.

Required:

Advise Kantala Limited on how to measure the fair value of the land in its financial statements. (2 Marks)

Answer

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Tags: Agricultural Land, Fair Value, IFRS 13, Revaluation Model
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

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 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)

Answer

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Tags: Asset Valuation, Fair Value Hierarchy, IFRS 13, Valuation Techniques
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – May 2021 – L3 – Q4 – Fair Value Measurement (IFRS 13)

Evaluate fair value relevance versus historical cost and explain valuation techniques under IFRS 13.

Question

Required:

i. Discuss the view that fair value is a more relevant measure to use in corporate reporting than historical cost. (4 Marks)

ii. Discuss the valuation techniques in fair value measurement in accordance with IFRS 13. (4 Marks)

Answer

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Tags: Fair Value, Historical Cost, IFRS 13, Valuation Techniques
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L3 – Q4c – Fair Value Measurement (IFRS 13)

Discuss IFRS 13’s principles in computing fair value for land with alternative uses in Abuja.

Question

Legal costs: N4,000,000
Project viability analysis: N6,000,000
Demolition of commercial structures: N2,000,000

Due to uncertainty in obtaining residential use permission from the Abuja Municipal Authority, market participants would discount the fair value by 20%.

Required: Discuss the way in which Megida Plc should compute the fair value of the Abuja land with reference to the principles of IFRS 13 Fair Value Measurement. (10 Marks)

Answer

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Tags: Fair Value, Highest and Best Use, IFRS 13, Market Participants, Risk Adjustment
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L3 – Q4b -Fair Value Measurement (IFRS 13)

Determine the principal market and fair value measurement for product sales in the Lagos and Accra markets.

Question

	Lagos Market (N’000)	Accra Market (N’000)
Sale Price	260	250
Transaction Cost	(30)	(10)
Transport Cost	(20)	(20)
Net Price Received	210	220

Required:

ii. How is fair value determined in the absence of a principal market, and what fair value would be used to measure the sale of the above product if no principal market could be identified? (4 Marks)

Answer

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Tags: Asset Valuation, Fair Value, IFRS 13, Most Advantageous Market, Principal Market
Level: Level 3

Topic: Fair Value Measurement (IFRS 13)

CR – Nov 2016 – L3 – Q4a – Fair Value Measurement (IFRS 13)

Define fair value as per IFRS 13, addressing the standardized approach to valuation.

Question

Required: Define fair value in accordance with IFRS 13. (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Valuation, Fair Value, IFRS 13, Liability Valuation
Level: Level 3