Item not held by another party as an asset

Learning objectives

• Calculate the present value of the cash flows that a market participant would incur in assuming the obligation, including its compensation.L3

Normative references

• IFRS 13 §40When no quoted price exists and no other party holds the item as an asset, the liability is measured using a valuation technique from the perspective of a market participant that assumes the obligation.
• IFRS 13 §41For example, using a present value technique, the entity may use either the cash outflows that a market participant would expect to incur in fulfilling the obligation, including the compensation it would require for taking on the obligation, or the amount that a market participant would receive to issue an identical item.

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

3 questions

• Kerlane has a dismantling obligation for which no quoted price exists and which no third party holds as an asset. A participant who would assume the obligation would bear an expected outflow of {expected_outflow} in {years} years; the discount rate it would use, including its risk compensation margin, is {rate}% (case data). Compute the fair value of the liability using present value.L3
• No quoted price exists for the transfer of the liability and no third party holds it as an asset. How does the entity measure it?L3
• For a clean-up obligation with no quoted price, an analyst computes the present value of the outflows Fontvane expects to bear, with no margin added, on the grounds that "Fontvane asks for no compensation for its own debt". What is the error?L3