Page 18 - Finac1 Test 2 slides - 1. Fair Value Measurement (IFRS 13)

IFRS 13

Elements of fair value measurement

Market participants – Example

Scenario:
• Bekele holds 1 000 shares in Defar Ltd. Defar Ltd is a company listed on the JSE
Limited. The share price of Defar Ltd according to the JSE was R250 per share on
30 June 20.12. Bekele determined that it is possible to conclude an off-market
transaction of R300 per Defar Ltd share.

Solution:

• An entity determines the fair value measurement with reference to the
principal market for the asset or if no principal market exists, with reference to
the most advantageous market for the asset (IFRS 13.16).

• IFRS 13 defines the principal market as the market with the greatest volume
and level of activity for the asset or liability which in this case is the JSE.

• Even though the most advantageous market is the off-market transaction for
the listed share of R300 per share; the principal market is the JSE, where the
share price is R250 per share.

• Conclusion: The fair value of the listed investment in Defar Ltd is R250 000 (1
000 x R250).
• Fair value hierarchy: Level 1

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