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Chapter 1

IFRS 13 Fair Value Measurement

2.1 Background and purpose

The objective of IFRS 13 is to provide a single source of guidance for fair value
measurement where it is required by a reporting standard.

2.2 Definition

Fair value is ‘the price received when selling an asset, or the price
paid to transfer a liability, in an orderly transaction between
market participants at the measurement date’ (IFRS 13, para 9).

Market participants are knowledgeable third parties. They would take the following
into account when pricing a transaction:

 condition

 location

 restrictions on use.

2.3 Approaches

There are various approaches allowed when determining a fair value:

 Market approaches (based on recent selling prices)

 Cost approaches (based on replacement cost)

 Income approaches (valuations based on financial forecasts).

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