Page 398 - SBR Integrated Workbook STUDENT S18-J19

Chapter 25

Example 2

Markets

Principal market

In the absence of data IFRS 13 would permit Ware to assume that the
principal market is the one it most regularly trades in – e.g. Country B.

However, data is readily available that demonstrates that the principal market
for this inventory is actually Country A.

Most advantageous market

In Country A, Ware makes a profit per unit of $4 ($9 – $4 – $1). In Country B,
Ware makes a profit per unit of $6 ($10 – $3 – $1).

The most advantageous market is Company B.

Fair value

Fair value should be measured based on the principal market – Country A.

Transport costs should be factored into fair value measurement because
location is a characteristic of the asset. Transaction costs are not factored into
the fair value measurement because they relate to the sales transaction.

The fair value of one unit is therefore $8 ($9 – $1).

Note: If no principal market existed then the most advantageous market
would be used – Country B. This would give rise to a fair value measurement
of $9 ($10 – $1).

392