Transaction price and fair value

Learning objectives

• Analyse whether the transaction price represents fair value at initial recognition (related parties, duress, different market).L3
• Calculate the difference between the fair value derived from a valuation technique and the transaction price.L3

Normative references

• IFRS 13 §57At initial recognition, the transaction price is an entry price, whereas fair value is an exit price: the two may differ.
• IFRS 13 §58In many cases, the transaction price equals fair value at initial recognition (for example a purchase in the market in which the asset would be sold); this is not always the case (see paras. 59 and B4).
• IFRS 13 §59The entity determines whether the transaction price represents fair value by taking into account factors specific to the transaction.

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

7 questions

• At initial recognition, why may the transaction price differ from fair value?L3
• Fordane acquires an instrument for {transaction_price}. A valuation technique for the exit price, based on observable inputs, gives {fair_value} at the acquisition date. Compute the difference between fair value and the transaction price (positive: fair value above the price paid).L3
• The Brélane fund acquires a financial instrument for {price_paid} in cash. The fair value at the acquisition date, from a technique based on observable inputs, is {fair_value}. Fair value is required at initial recognition and no provision of another standard requires the difference to be deferred (case data). Record the acquisition entry.L3
• Which statements about the day-one difference (fair value − transaction price) are correct? (Several answers.)L4
• Moldrane bank acquires a security for {price_paid}. Its fair value at the acquisition date is {fair_value}, required at initial recognition. No provision of another standard requires the difference to be deferred (case data). Compute the day-one gain recognised in profit or loss and the initial carrying amount of the security.L4
• Quenlane bank acquires an instrument for {price_paid} in cash. Its fair value at the acquisition date is {fair_value}. Case data: the standard applicable to the instrument requires the day-one difference to be deferred, because fair value rests on unobservable inputs. Record the acquisition entry.L4
• Rivelane bank acquires a portfolio of receivables for 970,000; its fair value, required at initial recognition, is 1,000,000 under a technique based on unobservable inputs. To decide the treatment of the 30,000 difference, what must the bank rely on?L4