Fair value measurement memo: Brenno site

Context

Groupe Halvern (fictitious entity) combines an industrial division and a financial division. For the 31 December 20X5 closing, you prepare the fair value measurement file: copper lot, industrial site, warranty, level 3 instruments, an instrument acquired during the year and a derivatives portfolio. A reviewer will check the file and may ask questions. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Assignment

Fair value measurement memo

Purpose of the workpaper

For each item measured (one instance per item), describe the item and its unit of account, compare the markets available (net amount received, volume and activity), document the highest and best use of a non-financial asset (value under each use less conversion costs), reconcile the indications of the techniques (weighting, expected cash flow, present value), then justify the three judgements: reference market, highest and best use, unobservable inputs.

Questions of the file covered by this workpaper

• What is the principal market of the copper lot?
• Compute the net value of the site under each use.
• What is the value under the highest and best use?
• Compute the expected net exit price of the converted site.
• Discount it at the rate retained.
• Which indication should be retained for the site? Justify.

• MemoEngagement letterOpen
• ScheduleMarkets for the copper lotOpen
• ScheduleBrenno siteOpen
• ScheduleIncome approach cross-checkOpen
• ContractPerformance warrantyOpen
• ScheduleLevel 3 movementsOpen
• ContractInstrument acquired in OctoberOpen
• ScheduleInterest rate derivatives portfolioOpen
• DocumentReply from the risk departmentOpen
• MemoTraining budgetOpen