Characteristics of the asset or liability

Learning objectives

• Identify the characteristics (condition, location, restrictions) that are reflected in the price and those that are not.L2

Normative references

• IFRS 13 §10Cross-reference: the overall fair value measurement approach (item measured, valuation premise, market, techniques) is described in paragraph B2.
• IFRS 13 §11Examples of relevant characteristics: the condition and location of the asset, and any restrictions on its sale or use.
• IFRS 13 §12The effect of a characteristic on the measurement differs depending on how market participants would take it into account.
• IFRS 13 §B2Measurement approach: determine the item being measured (consistent with its unit of account), for a non-financial asset the valuation premise (consistent with its highest and best use), the principal or most advantageous market, and the appropriate valuation techniques, considering the availability of data and their level in the hierarchy.
• IFRS 13Valuation premise for a non-financial asset used in combination with other assets (or with other assets and liabilities, such as a business): its effect depends on the circumstances. The combined use may have no effect on fair value or may be reflected through adjustments to the value of the asset on a stand-alone basis, through market participant assumptions, through the valuation technique (for example the multi-period excess earnings method for an intangible asset) or, in more limited cases, by allocating the fair value of an asset group to its components.
• IFRS 13Fair value at initial recognition: in assessing whether the transaction price equals fair value, the entity takes into account factors specific to the transaction and to the item. The price may differ in particular for a related party transaction (unless there is evidence of market terms), a transaction under duress or a forced sale, a different unit of account (for example in a business combination, unstated rights measured separately or transaction costs included in the price) or a market other than the principal (or most advantageous) market.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• To set the price of a plot of land, which items does the entity take into account if market participants would themselves take them into account? (Several answers.)L2
• To measure a building, Garrick applies a 10% discount because the entity's loan agreement forbids it from selling the building within five years. This ban would not follow the building to a buyer. What is the error?L2
• To prepare the fair value measurement of a warehouse, an analyst looks for the overall approach to which IFRS 13 refers. What does this approach cover?L2