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Frameworks

2.4 The price

Fair value is a market-based measurement. As such, observable data from active
markets should be used whenever possible.

An active market is a market where transactions for the asset or
liability occur frequently.

IFRS 13 classifies inputs into valuation techniques into three levels:

 Level 1 inputs are quoted prices for identical assets in active markets

 Level 2 inputs are observable inputs that are not level 1 inputs. This includes:

– Quoted prices for similar assets in active markets

– Quoted prices for identical assets in less active markets

– Observable inputs that are not prices (such as interest rates).

 Level 3 inputs are unobservable (such as an entity’s own data).

Priority is given to level 1 inputs. Lowest priority is given to level 3
inputs.

Illustrations and further practice

You can now try TYU 2 from Chapter 1

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