Skip to content

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

Delta plc must measure the fair value of a liability for decommissioning a plant, which it cannot transfer in an observable market and for which no quoted price exists for an identical liability. Delta plans to settle the liability itself in 10 years. The finance director proposes valuing it using Delta's own estimated settlement cost with no adjustment for risk. Which approach is consistent with IFRS 13?

Delta should use the amount a market participant would require to assume the obligation, including compensation for risk. IFRS 13 assumes the liability is transferred, not settled, and remains outstanding, so Delta's own intended settlement cost and expectations are not the basis.

  1. AUse Delta's own cost of settling, since the entity will fulfil the obligation itself
  2. BUse the amount a market participant would charge to assume the obligation, including compensation for risk, assuming transfer to that participant with the liability remaining outstandingCorrect
  3. CUse the amount Delta would pay to cancel the obligation with the counterparty
  4. DUse the undiscounted expected outflows, because liabilities are never discounted at fair value

Explanation

IFRS 13 assumes the liability is transferred to a market participant and not settled or extinguished, so the measure is the price a participant would require to assume it, including a risk and profit margin. Delta's own settlement intention and cost are entity-specific. Cancellation with the counterparty is a settlement notion, which IFRS 13 does not use.

Did you get it right without looking?

One question tells you little. A timed set on Fair value measurement shows your real accuracy, how long you take and where you lose marks.

Practise Fair value measurementFree diagnostic mock

More Fair value measurement questions