Highest and best use

Learning objectives

• Analyse the highest and best use of a non-financial asset against the three criteria (physically possible, legally permissible, financially feasible) from the perspective of market participants.L3
• Compare the value of the asset under different uses, net of conversion costs, in order to select the highest.L3

Normative references

• IFRS 13 §27For a non-financial asset, the measurement takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use it in that way.
• IFRS 13 §28Highest and best use is assessed among uses that are physically possible, legally permissible and financially feasible.
• IFRS 13 §29Highest and best use is determined from the perspective of market participants, even if the entity intends a different use; the current use of a non-financial asset is presumed to be its highest and best use unless market or other factors suggest a different use.
• IFRS 13 §30When the entity uses the asset defensively (to prevent others from using it), the measurement is still based on the highest and best use by market participants.

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

4 questions

• Among which uses is the highest and best use of a non-financial asset assessed?L3
• Brévanne's land is used as an industrial depot, with a value of {value_current}. Market participants could use it for residential purposes: market value of that use {value_residential}, before deducting conversion costs of {conversion_costs}. The three conditions (physically possible, legally permissible, financially feasible) are met for both uses (case data). Compute the net value of the residential use and then the value under the highest and best use.L3
• Calvenne's land is zoned industrial; this zoning rule applies to every market participant (case data). Net values of each use: current industrial depot 1,200,000; logistics warehouse, permitted and feasible, 1,350,000; housing, 1,850,000 but prohibited by zoning. Which value reflects the highest and best use?L3
• Delmare holds a trademark it does not want to exploit, to prevent a competitor from using it. A valuer proposes to measure the trademark at a near-zero value since Delmare does not exploit it. Write a reasoned analysis of the highest and best use to use for fair value.L3