The exit price

Learning objectives

• Determine whether a given amount is an exit price (selling an asset, transferring a liability) at the measurement date, as opposed to an entry price.L1, L2

Normative references

• IFRS 13 §9Definition: 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.
• IFRS 13 §24The price used is the exit price in the principal (or most advantageous) market, whether directly observable or estimated using a valuation technique.
• IFRS 13Appendix A: definitions of the terms used in the Standard (active market, cost approach, entry price, exit price, expected cash flow, fair value, highest and best use, income approach, inputs, Level 1 to Level 3 inputs, market approach, market-corroborated inputs, market participants, most advantageous market, non-performance risk, observable inputs, orderly transaction, principal market, risk premium, transaction costs, transport costs, unit of account, unobservable inputs). Market participants are defined as independent, knowledgeable, able and willing to enter into a transaction.

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

7 questions

• Fair value is 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.L1
• Linde bought a machine for 120,000 a year ago. At the reporting date, selling this machine in its principal market to a market participant would bring in 95,000. Which amount corresponds to the fair value of the machine?L1
• Which characteristics correctly describe the fair value of an asset under IFRS 13? (Several answers.)L2
• At 31 December, Orsanne measures a liability using a transfer price observed on 30 September, ignoring the market conditions at 31 December, on the grounds that "the nature of the price has not changed". What is the error?L2
• Savelin holds securities whose sale in their principal market would bring in 50,000 at the reporting date. Management plans to hold them for five years and proposes to measure them at 42,000 "since we will not sell them". Which amount represents fair value?L2
• The principal market for a lot of Maréval securities shows a price of {market_price}. By selling it, Maréval would bear {transaction_costs} of transaction costs. Compute the fair value of the lot and the net proceeds Maréval would receive.L2
• An industrial press of Norvaux is quoted at {market_price} in its principal market. Selling it would involve transaction costs of {transaction_costs}. Determine the fair value of the press and the net proceeds of sale.L2