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ACCA Strategic Professional · Strategic Business Reporting (International) · Fair value measurement

Altair Co measures an office building at fair value. No identical building is traded, so Altair uses a price per square metre derived from recent sales of similar buildings in the same district. The only adjustment is a 4% uplift for a better location, which is itself based on observable market data. Which statement about the hierarchy level of the overall fair value measurement is correct?

The measurement is Level 2. Prices of similar buildings are observable inputs other than Level 1 prices, and the location adjustment relies on observable market data. It would fall to Level 3 only if a significant adjustment used unobservable inputs. The percentage size of the adjustment is not itself the test.

  1. ALevel 1, as sales prices of similar buildings are quoted prices
  2. BLevel 2, as inputs are observable and the adjustment is based on observable dataCorrect
  3. CLevel 3, as any adjustment to a market price makes the input unobservable
  4. DLevel 2 only if the adjustment is below 5%

Explanation

Prices for similar (not identical) assets are Level 2 inputs. Adjusting them for asset-specific factors such as location keeps the measurement at Level 2 provided the adjustment is based on observable data and is not significant using unobservable inputs. Level 1 requires identical assets, and IFRS 13 sets no 5% threshold.

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