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ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets

Delta Group measures an investment property at fair value. The only inputs available are a recent price for an identical property in an active market, adjusted by Delta for a unique, significant, unobservable discount based on its own assumptions about the property's poor condition. The adjustment is significant to the whole measurement. Under the IFRS 13 fair value hierarchy, how is the measurement classified?

The measurement is Level 3. IFRS 13 classifies a fair value by the lowest level input that is significant to the whole measurement, and Delta's significant unobservable discount for condition is a Level 3 input, even though the starting price was observable.

  1. ALevel 1 because an identical property price was used as the starting point
  2. BLevel 2 because the market price is observable
  3. CLevel 3 because a significant unobservable input is usedCorrect
  4. DUnclassified because adjustments are not permitted under IFRS 13

Explanation

The hierarchy classification is based on the lowest level input that is significant to the whole measurement. A significant unobservable adjustment makes the measurement Level 3. Level 1 would require an unadjusted quoted price for an identical item, and adjustments to Level 1 prices generally lower the level.

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