Premiums and discounts

Learning objectives

• Assess whether a premium or discount is a characteristic of the item (permitted) or results from the size of the holding (excluded).L4

Normative references

• IFRS 13 §69Inputs are consistent with the characteristics of the asset or liability; a premium or discount that reflects the size of the entity's holding (blockage factor) is not permitted.

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

4 questions

• A controller reviews the input adjustments in a valuation file. Which one is contrary to the standard?L4
• A comparable asset is valued at {reference_value}. The asset being measured is in a less favourable condition; market participants would apply a discount of {characteristic_discount} (case data), linked to that characteristic of the asset and not to the quantity held by the entity. What is the fair value of the asset being measured?L4
• A comparable warehouse sold for {comparable_price}. The warehouse being measured is better located: market participants would pay a premium of {location_premium} (case data) for this location, a characteristic of the asset. The entity holds a single unit, unrelated to the size of its position. Compute the fair value of the warehouse being measured.L4
• Orvane holds a quoted interest whose size is several times the daily trading volume. To measure it, its valuer proposes two adjustments to the quoted price: (1) an 8% discount to reflect the size of the position; (2) a 4% discount because the asset being measured is less well located than the comparable used. Write a reasoned analysis of each adjustment.L4