A question for Tom

Top tutor Tom Clendon explain the concept of fair value measurement with the help of an example

Question

How do you arrive at the fair value when there are competing numbers given in a question? Can you please explain and illustrate?

Tom’s answer

The objective of the standard IFRS 13 Fair Value Measurement is to provide a single source of guidance for fair value measurement where it is required by a reporting standard. IFRS 13 does not extend the use of fair value, rather it provides guidance on how it should be determined when an initial or subsequent fair value measurement is required by a reporting standard.

Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Thus, the standard defines fair value on the basis of an ‘exit price’ notion and uses a ‘fair value hierarchy’, which results in a market-based, rather than entity-specific, measurement.

So much for theory. Let us see how fair values are applied in practical situations.

Question: Brampton

An investor has acquired control of Brampton and is conducting a review of its net assets to ascertain their fair value at the date of acquisition in order to determine goodwill. Brampton has owned some land for many years adjacent to its head office in the centre of the city. The land is currently used by staff for parking. The land is carried at its original