Page 95 - Microsoft Word - 00 IWB ACCA F7.docx

Other standards

IFRS 13 Fair Value Measurement

2.1 Definition

Fair value is ‘the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants’ (IFRS 13, para
9).

2.2 Hierarchy of inputs

 Level 1: quoted prices (observable) in active markets for identical items, the
most reliable evidence of fair value

 Level 2: observable inputs other than level 1, e.g. similar items in active
markets or identical items in inactive markets. Some adjustment necessary to
reach fair value

 Level 3: unobservable inputs, based upon best information available

Measurement of fair value should take into account the characteristics of the item, for
example its location and condition, and any restrictions applicable.

You need to learn the hierarchy of inputs.

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