Selecting and weighting techniques

Learning objectives

• Justify the selection of one or more valuation techniques according to the data available and the weighting of the indications.L3
• Calculate a fair value as a weighted average of several indications derived from valuation techniques.L3

Normative references

• IFRS 13 §61The entity uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available, maximising the use of relevant observable inputs.
• IFRS 13 §62The objective of a valuation technique is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions.
• IFRS 13 §63Depending on the circumstances, a single valuation technique may be appropriate (for example quoted prices) or multiple techniques must be used; in that case, the results are evaluated considering the reasonableness of the range of values, fair value being the point within that range that is most representative in the circumstances.

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

5 questions

• For an instrument, Mervale has observable prices for comparable items and internal cash flow forecasts. What does the standard provide for the choice of valuation technique?L3
• An entity applies several valuation techniques to the same instrument and obtains different results. Which statements are consistent with the standard?L3
• Lorvane values an unlisted interest using two techniques: the market approach gives {market_indication} and the income approach {income_indication}. After assessing their relevance and reliability, the valuer uses (case data) weights of {market_weight} and {income_weight}. Compute the weighted fair value.L3
• For an operating building, Dorvik obtains three indications: {market_result} (market), {income_result} (income) and {cost_result} (cost). Based on its assessment of the relevance and reliability of each technique (case data), it gives them weights of {market_share}, {income_share} and {cost_share} respectively. What is the fair value retained?L3
• In a file review, a controller examines four valuation practices. Which one is contrary to the expected approach?L3