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

Dara Group acquired Vell Ltd and, as part of consideration, issued its own equity shares. On the acquisition date there was a quoted price for Dara's shares in an active market of $4.00. Dara's directors argue that the shares are worth $3.50 because of the large block issued. Under IFRS 13 and IFRS 3, which treatment is correct?

Dara should measure the shares issued at the quoted $4.00 per share. IFRS 13 requires Level 1 prices to be used unadjusted and prohibits blockage discounts, so the directors' $3.50 view is wrong. Consideration is measured at acquisition-date fair value.

  1. AUse $3.50 because blockage discounts are permitted for large holdings of equity instruments
  2. BUse the Level 1 quoted price of $4.00 per share, with no blockage factor adjustmentCorrect
  3. CUse $3.75 as the average of the two views
  4. DUse the net asset value per share of Vell Ltd

Explanation

Under IFRS 13 a Level 1 quoted price in an active market must be used without adjustment, and a blockage factor is prohibited. Consideration in shares is measured at the acquisition-date fair value, so $4.00 per share applies. Averaging or using target net assets has no basis.

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