(Summary) Ind AS 113
Fair Value Measurement
This Ind AS defines FV, sets out in a single Ind AS a framework for measuring FV, requires disclosures about fair value measurements.
This Ind AS applies when another Ind AS requires or permits FV measurements or disclosures about FV measurements.
- Fair value
- Active market
- Exit price
- Most advantageous market
- Principal market
- Highest and best use
Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The hierarchy categorises the inputs used in valuation techniques into three levels.
Level 1 inputs:
These are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 inputs:
These are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs:
These are unobservable inputs for the asset or liability.
Fair value measurement approach:
- The objective of fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability.
- FV measurement requires an entity to determine:
- particular asset or liability
- valuation premise
- principal (or most advantageous) market
- valuation technique(s)
Three widely used valuation techniques are:
Market approach– uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. A business)
Cost approach– reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost)
Income approach– converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts.
Disclose information that helps users of FS assess both of the following:
- For assets and liabilities that are measured at FV on a recurring or non-recurring basis in the BS after initial recognition, the valuation techniques and inputs used to develop those measurements
- For FV measurements using significant unobservable inputs (level 3), the effect of the measurements on P/L or OCI for the