1. IFRS 13 fair value measurement.

the price which would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
-When measuring fair value, all characteristics of the asset/liability that a market participant would take
into account should be reflected in the valuation. This could include the condition or location of the
asset and any restrictions on the use of the asset.
-The definition is market-based and is not entity-specific. It reflects the use market participants would
use the asset/liability for, not what a specific entity would use the asset/liability for.
-Not all standards use the IFRS 13 definition of fair value; for example, IFRS 2 Share-based
Payment defines fair value as "the amount for which an asset could be exchanged, a liability settled, or
an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm's
length transaction".
-When IFRS 13 was issued, its scope excluded share-based transactions. The IASB felt that a market-
based value would over-complicate IFRS 2 and therefore retained the existing definition.

2. Valuation Techniques
The objective of the standard is to estimate the price at which the asset/liability could exit the entity in
an orderly transaction. Three common valuation techniques that may give an accurate estimate are
considered.
 Market Approach-
-The market approach uses prices and other information generated in a marketplace that
involve identical or comparable assets/liabilities.
-It works best when there are many transactions happening in the market for similar items,
like stocks or real estate.
-Example: If a company owns a building, its fair value can be estimated by looking at the
selling prices of similar buildings in the same area.
 Cost Approach
-A cost approach reflects the amount that would be required to replace the service capacity of
the asset (e.g. current replacement cost).

-It’s commonly used for specialized assets, like equipment or infrastructure, that don’t have a
regular market for sales.

 Income Approach

-An income approach considers future cash flows and discounts those cash flows to a current
value. Models that follow an income approach include:

o present value; and

o option pricing models (e.g. Black-Scholes-Merton).

-The future cash flows are "discounted" to present value using a discount rate, which
reflects the risk and the time value of money.

-Example: If you’re valuing a rental property, you estimate how much rent it will
earn in the future, and then calculate how much that rent is worth today by applying a
discount rate.

3. Importance of IFRS 13.

Consistency: Everyone follows the same rules for fair value, making financial reports easier to
compare.
Transparency: Companies must explain how they calculate fair value, helping users understand the
numbers better.
Better Decisions: More accurate valuations help investors and managers make smarter choices.
Trust: Using market data makes valuations less subjective, building trust in financial reports.
 Comparability: Fair value can be easily compared across companies, making performance evaluation
simpler.

4. Going concern.

Going concern assumes that the entity will continue in operation for the foreseeable future. This basis
is presumed to apply unless users of financial statements are told otherwise (in the notes to the financial
statements).
Assumption: Financial statements are prepared with the belief the company will keep running for at
least 12 months.
Valuation: Assets and liabilities are recorded at normal values, not liquidation prices.
Disclosure: If there’s doubt about the company’s survival, this must be mentioned in the financial
statements.

5. Qualitative charachterstics.
1. Relevance:-Fair value information should be useful for decision-making. It helps users assess
the current value of assets and liabilities based on market conditions.
2. Faithful Representation:-The measurements must be complete, neutral, and free from error.
Fair value must reflect the true economic conditions of the asset or liability.
3. Comparability:-Fair value measurements should be comparable across different entities.
IFRS 13 sets a standard method for fair value, making it easier to compare financial
information across companies.
4. Verifiability:-Others should be able to check and verify the measurement methods and inputs,
ensuring the fair value can be confirmed through evidence.
5. Timeliness:-Fair value information must be up-to-date and relevant to the reporting period,
reflecting current market conditions.
6. Understandability:-The fair value information should be presented clearly, so that users can
easily understand the data and the assumptions behind the measurement.

6. Prudence concepts.
The exercise of caution when making estimates under conditions of uncertainty, such that assets and
income are not overstated and liabilities and expenses are not understated.

7. Where is prudence concept used?

Prudence is evident in various requirements of existing IFRS Accounting Standards, for example:
 expected credit losses are recognised in respect of financial assets (IFRS 9);
 assets are tested for impairment and resulting losses are recognised (IAS 36);
 inventories are measured at the lower of cost and net realisable value (IAS 2);
 provisions are recognised for liabilities even if not certain (IAS 37).

8. Initial measurement of IAS 16.

Cost will include the following, where relevant:
-Purchase price, including import duties and non-refundable purchase taxes (after deducting trade
discounts and rebates).
Directly attributable cost.
-Directly attributable costs of bringing the asset to the location and condition necessary for it to be able
to operate as intended, such as:
a. wages and salaries arising directly from construction or acquisition;
b. costs of site preparation;
c. initial delivery and handling costs;
d. installation and assembly costs;
e. costs of testing proper functioning (i.e. to assess technical/physical performance);
f. professional fees (e.g. architects and engineers);
g. decommissioning costs; and
h. borrowing costs.
IAS 16 also requires that any sale proceeds arising from items produced in a testing stage
should be recognised as revenue (or income), together with their production costs, in profit or
 loss. Such “proceeds before intended use” cannot be deducted from the costs of testing in
order to reduce the initial measurement of the item of property, plant or equipment.

9. Revaluation model(IAS 16)

 Under the revaluation model, an asset is subsequently carried at a revalued amount, being fair
value at the date of the revaluation less any subsequent accumulated depreciation and any
accumulated impairment losses.
 To use this model, fair value must be reliably measurable.
 The revaluation model is an accounting policy choice and must be applied to all assets within
a given class.
 Revaluations must be carried out with sufficient frequency such that carrying amount does not
differ materially from fair value at any reporting date.
 An upwards revaluation is recognised in other comprehensive income (OCI), unless it reverses
a previous downwards revaluation on the same asset that was recognised in profit or loss. In
this case it is recognised in profit or loss to an amount equal to the previous downwards
revaluation and in OCI thereafter.
 A downwards revaluation is treated as an impairment and recognised in profit or loss unless it
reverses a previous upwards revaluation on the same asset that was recognised in OCI. In this
case it is recognised in OCI to the extent that a surplus exists in relation to the asset and
thereafter in profit or loss.
10. Investment property(IAS 10)
-property (land and/or building or part thereof) held (by the owner or a lessee as a right-of-use asset) to
earn rentals or for capital appreciation or both, rather than for:
 use in the production/supply of goods/services or for administrative purposes; or
 sale in the ordinary course of business.
Investment property includes:
 land held for long-term capital appreciation;
 land held for an undetermined future use;
 a building owned and leased out under one or more operating leases;
 a building leased (i.e. held as a right-of-use asset in accordance with IFRS 16 Leases) and sublet out under
one or more operating leases;
 a currently vacant building that the entity intends to lease out under one or more operating leases;
 property under development for future use as investment property.

11. Change in IAS 40.

When?
-Transfers to and from investment property are made when, and only when, there is a change in use.
This occurs when:
 the property meets or ceases to meet the definition of investment property; and
 there is evidence of change in use.
Management intentions alone do not provide evidence of a change in use. Examples of a change in use include:
 the commencement of owner-occupation (for a transfer from investment property to owner-occupied
property);
 the commencement of development with a view to sale (for a transfer from investment property to
inventories);
 the end of owner-occupation (for a transfer from owner-occupied property to investment property); or
 the commencement of an operating lease to another party (for a transfer from inventories to investment
property).

Accounting for a change in use.

Where investment property is measured using the cost model:
 transfers between investment property, owner-occupied property and inventories do not change the carrying
amount of the transferred property
Where investment property is measured using the fair value model:
 Investment property to inventories or owner-occupied property-The property is remeasured to fair
value at the date of transfer in accordance with IAS 40 and the fair value of the property at the date of
 transfer is deemed cost for the subsequent application of IAS 2 Inventories, IAS 16 (cost model or
revaluation model) or IFRS 16.
 Owner occupied property to investment property-IAS 16 (or IFRS 16) is applied up to the date of
transfer. At that date any difference between carrying amount and fair value is accounted for as a
revaluation in accordance with IAS 16.
 Inventories to investment property-Any difference between carrying amount and fair value at the point
of transfer is recognised in profit or loss.
When an entity completes the construction or development of a self-constructed investment property
that will be measured using the fair value model, any difference between the fair value of the property
at the completion date and its previous carrying amount is measured in profit or loss.

12. The revaluation of intangibles will be uncommon in practice as it is not expected that an active
market will exist for most intangible assets in that:
 they will not be homogeneous (most are unique);
 willing buyers and sellers may not be normally found at any time; and
 prices are not usually available to the public.
For example, active markets cannot exist for brands, newspaper mastheads, music and film publishing rights,
patents or trademarks. Each item is unique, transactions are relatively infrequent and contracts are negotiated
between individual buyers and sellers.
However, examples do exist of active markets for intangible assets – freely transferable taxi licences, fishing
licences and production quotas.
The Kyoto Agreement on climate change has given rise to an active market in the buying and selling of
emission rights.