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

Gamma Co measures an item of plant at fair value using a market approach. The quoted price of an identical machine in an active market is $500,000 at the measurement date. Gamma holds 40 such machines, and a market participant would incur transport costs of $20,000 per machine to move the machine to the principal market where the price is quoted; the asset is currently located elsewhere. In addition, Gamma would incur $5,000 per machine in broker transaction costs on sale. What is the fair value per machine under IFRS 13?

Fair value is $480,000 per machine. The quoted price of $500,000 is adjusted downwards by the $20,000 transport cost because location is a characteristic of the asset, but transaction costs of $5,000 are excluded from fair value under IFRS 13.

  1. A$500,000
  2. B$480,000Correct
  3. C$475,000
  4. D$455,000

Explanation

Fair value is the quoted price adjusted for transport costs if location is a characteristic of the asset: $500,000 - $20,000 = $480,000. Transaction costs are not deducted from fair value. Deducting them gives $475,000 or $455,000, which is wrong, and ignoring transport gives $500,000. Also no blockage adjustment applies to Level 1 prices.

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