The liability transfer assumption

Learning objectives

• Explain why a liability is measured as if it were transferred to a market participant rather than settled with the counterparty.L3

Normative references

• IFRS 13 §34For a liability or an entity's own equity instrument, the measurement assumes a transfer to a market participant, the liability remaining outstanding and not being settled.
• IFRS 13 §35Even when there is no observable market for the transfer of a liability or of an entity's own equity instrument (for example because of contractual or legal restrictions), an observable market may exist when other parties hold those items as assets (a corporate bond, a call option on the entity's shares).
• IFRS 13 §36When measuring a liability or an entity's own equity instrument, valuation techniques maximise the use of relevant observable inputs.

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

4 questions

• What assumption does IFRS 13 use to measure an entity's liability at fair value?L3
• Which statements about the fair value measurement of a liability are correct? (Several answers.)L3
• For the fair value of its warranty provision, Brasselle uses the amount it would have to pay the customer to extinguish the obligation, on the grounds that "the liability thereby disappears from our books". What is the error?L3
• Zendrale has a site restoration obligation. No transfer market is observable. The regulator would accept a settlement of 900; a market participant taking over the obligation would require 1,050 according to the estimate made (case data). Which amount does Zendrale use for the fair value of the liability?L3