ACCA Strategic Professional · Strategic Business Reporting (International) · Fair value measurement
A parent acquires a subsidiary and measures an acquired plant at fair value under IFRS 3. The finance director wants to value the plant using synergies available only to the parent through combining it with its own operations, which raises the value by $2 million. Which statement is correct under IFRS 13?
The synergies should be excluded. IFRS 13 measures fair value from the perspective of market participants, so benefits available only to the acquiring entity are entity-specific and do not change fair value, even in a business combination. Inflating plant value this way would also raise ethical concerns.
- AInclude the synergies, because the acquirer's intended use determines fair value in a business combination
- BInclude half of the synergies, as the market would share them
- CExclude the synergies, because fair value uses assumptions of market participants, not entity-specific benefitsCorrect
- DInclude the synergies only if they are disclosed as a Level 3 input
Explanation
Fair value uses the assumptions market participants would use, so benefits specific to the acquirer are excluded. Entity-specific synergies unavailable to other participants do not affect fair value. Including them would breach the objectivity of the measurement and could be an ethical issue if done to inflate assets or reduce goodwill.
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