Strategic Business Reporting (International) · Fair value measurement

IFRS 13 Disclosure and Fair Value in Other Standards

Updated 11 October 2026 · Fact-checked

IFRS 13 sets how fair value is measured and what you disclose. Other standards (IFRS 3, IAS 16, IAS 40, IFRS 9, IAS 36) decide when fair value is used. In the exam, identify which standard applies, measure using IFRS 13, state the hierarchy level, then give the accounting entry and disclosure.

Understand IFRS 13 Disclosure and Application to Other Standards

IFRS 13 does not tell you when to use fair value. Other standards do that. IFRS 13 tells you how to measure it and what to disclose. Fair value is the price received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It is an exit price, not an entry price.

The standard ranks inputs in a fair value hierarchy. Level 1 is quoted prices in active markets for identical items. Level 2 is other observable inputs, such as prices for similar items. Level 3 is unobservable inputs, based on the entity's own assumptions about what market participants would use. Always maximise observable inputs.

Disclosure is driven by the hierarchy. For items measured at fair value after initial recognition, you disclose the fair value and the level. For Level 2 and 3 you disclose the valuation technique and inputs, and any change in technique. Level 3 needs more: quantitative information on significant unobservable inputs. For recurring fair value measurements, you disclose transfers between Levels 1 and 2 separately, along with the policy for deciding when transfers between levels occur. For recurring Level 3 fair value measurements only, you also give a reconciliation of opening to closing balances, in which transfers into or out of Level 3 appear, and a narrative description of the sensitivity of the measurement to changes in unobservable inputs. Disclosures also cover why a non-financial asset's highest and best use differs from its current use. The reason is simple: users need to judge how reliable the number is.

The other standards use fair value in different ways. IFRS 3 measures identifiable assets acquired and liabilities assumed at acquisition-date fair value (with exceptions such as deferred tax and employee benefits). IAS 16 allows the revaluation model, using fair value. IAS 40 allows the fair value model for investment property, with changes in profit or loss. IFRS 9 requires financial assets to be initially measured at fair value, plus transaction costs if the asset is not at fair value through profit or loss. The exception is trade receivables without a significant financing component, which are measured at the transaction price (IFRS 15). After that, fair value through profit or loss is the default (residual) category for assets that do not qualify for amortised cost or fair value through OCI. Fair value through OCI applies to debt assets that meet the business model and cash flow tests, or to equity investments by irrevocable election. IAS 36 uses fair value less costs of disposal as one part of recoverable amount.

A key point is that costs of disposal are not part of fair value. Transaction costs are not deducted from fair value under IFRS 13. They are deducted only where the other standard says so, for example in IAS 36.

Key rules to remember

Fair value definition: Fair value = price received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date; Exit price. Market participant view, not the entity's own intentions.
Hierarchy: Level 1 = quoted prices, identical items, active market; Level 2 = other observable inputs; Level 3 = unobservable inputs; The level of the whole measurement is that of the lowest-level input that is significant to it.
IAS 36 recoverable amount: Recoverable amount = higher of (fair value less costs of disposal) and value in use; Impairment loss = carrying amount − recoverable amount, if positive.
Fair value less costs of disposal: FVLCD = IFRS 13 fair value − incremental costs of disposal; Costs are deducted only because IAS 36 requires it.
IFRS 3 goodwill: Goodwill = consideration + non-controlling interest + fair value of previously held interest − fair value of net identifiable assets; Consideration is measured at acquisition-date fair value. NCI is measured at fair value or at the proportionate share of net assets.
IAS 40 fair value model: Gain or loss = closing fair value − opening carrying amount, in profit or loss; Adjusted for additions and disposals in the period. No depreciation under the fair value model.

How to solve IFRS 13 Disclosure and Application to Other Standards questions

Use this method for any scenario asking how fair value applies or what to disclose.

1Identify which standard requires or permits fair value for the item (IFRS 3, IAS 16, IAS 40, IFRS 9 or IAS 36).
2Apply IFRS 13 to measure it: identify the asset or liability, the principal or most advantageous market, the market participants, and the highest and best use for non-financial assets.
3Choose the valuation technique (market, income or cost) and maximise observable inputs.
4State the hierarchy level, based on the lowest significant input.
5Remove or add items correctly: exclude transaction costs from fair value, and deduct costs of disposal only if the other standard says so.
6Calculate and post the accounting entry (profit or loss, OCI, goodwill or impairment).
7Write the disclosures that match the level, especially for Level 3.
8Add a short comment on reliability, judgement or ethics where the scenario hints at aggressive valuations.

Quickest way: Standard, Measure, Level, Entry, Disclose

When to use it: Use it when time is short and the scenario is a mixed problem with several fair value items.

Write the standard next to each item.
Write the fair value and its level in one line.
Adjust for transaction or disposal costs only if required.
Write the entry and where it goes (P&L, OCI, goodwill).
Add one disclosure line per item, with extra detail for Level 3.

Common mistakes in IFRS 13 Disclosure and Application to Other Standards

Deducting transaction costs from fair value under IFRS 13.
Students blend fair value with fair value less costs of disposal.
Fix: Keep fair value gross. Deduct costs only in IAS 36 or where another standard requires it.
Thinking IFRS 13 decides when fair value is used.
The standard name suggests it covers everything about fair value.
Fix: Name the standard that requires the measurement, then use IFRS 13 only for how.
Using the entity's intended use rather than highest and best use.
Students focus on what management plans to do.
Fix: Ask what a market participant would do with the asset, if physically possible, legally permitted and financially feasible.
Assigning a Level 1 label to a valuation that uses a significant adjustment.
Students look at the starting input and ignore later adjustments.
Fix: The level is set by the lowest-level input that is significant. Say so and explain it.
Putting investment property fair value gains in OCI.
Confusion with the IAS 16 revaluation model.
Fix: Under IAS 40 fair value model, gains and losses go to profit or loss. Under IAS 16 revaluation, gains go to OCI unless reversing a previous loss.
Giving a list of disclosures with no link to the scenario.
Students recite the standard from memory.
Fix: Tie each disclosure to the facts given, such as Level 3 inputs, a change in technique or a highest and best use that differs from current use.

Worked examples

Example 1

Alpha acquires 100% of Beta. Beta owns land with a carrying amount of $4m. A market participant would develop the land for housing, and its fair value on that basis is $6m. Assume housing development is physically possible, legally permitted and financially feasible. Alpha plans to keep the land as a car park. Alpha pays $20m. The fair value of Beta's other net identifiable assets is $12m. Calculate goodwill and explain the IFRS 13 point.

Show the solution

IFRS 3 requires identifiable assets to be measured at acquisition-date fair value.
IFRS 13 measures a non-financial asset at its highest and best use from a market participant view. That use must be physically possible, legally permitted and financially feasible. We are told to assume all three, so the land is $6m, not the $4m carrying amount.
Alpha's own plan to use the land as a car park does not change the fair value.
Net identifiable assets = $12m + $6m = $18m.
Goodwill = $20m − $18m = $2m.

Answer: Goodwill is $2m. The land is measured at $6m because market participants would use it for housing, and that use is assumed to be possible, permitted and feasible. The hierarchy level depends on the inputs used. The scenario does not give them, so state that the level is set by the lowest-level input that is significant to the measurement. Disclose the level, the technique and the significant inputs.

Exam tips

Always name the standard that requires fair value before applying IFRS 13. Markers reward this link.
State the hierarchy level for every fair value you calculate and say why.
In disclosure questions, tailor your answer to the scenario. A generic list earns few marks.
Watch for hints about aggressive valuations or management bias. These often carry professional skills and ethics marks.
Set out a clear numerical layout. Show the fair value, adjustment and entry on separate lines.

Practice questions from Fair value measurement

IFRS 13 Disclosure and Application to Other Standards in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IFRS 13 Disclosure and Application to Other Standards: frequently asked questions

What are the main IFRS 13 disclosure requirements?

For items measured at fair value, you disclose the fair value and its hierarchy level. For Level 2 and 3 you add the valuation technique and inputs. For Level 3 you also give quantitative information about significant unobservable inputs. For recurring Level 3 measurements only, you add a reconciliation and a narrative description of the sensitivity of the measurement.

Are transaction costs part of fair value under IFRS 13?

No. Fair value is not adjusted for transaction costs. Another standard may require costs of disposal to be deducted, such as IAS 36 for fair value less costs of disposal.

How is fair value used in business combinations under IFRS 3?

Identifiable assets acquired and liabilities assumed are measured at acquisition-date fair value, except for items with specific exceptions such as deferred tax. These values feed into the goodwill calculation. IFRS 13 gives the measurement rules.

How do I answer a fair value measurement question in SBR?

Name the standard that requires fair value, measure using IFRS 13, state the hierarchy level and calculate the entry. Then give the relevant disclosures and comment on any judgement or ethical issue. Always apply each point to the scenario.