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

Karo Ltd holds a machine that it can sell in two markets. Market X is the one with the greatest volume and activity for the machine, where the price is $500,000 and transaction costs are $20,000, and transport costs to get there are $15,000. Market Y has a price of $520,000, with transaction costs of $40,000 and transport costs of $5,000. Karo has access to both markets and no principal market has been formally designated. What is the fair value of the machine under IFRS 13?

Fair value is $485,000. The principal market, Market X, must be used because it has the greatest volume and activity. The price of $500,000 is reduced by the $15,000 transport cost, but transaction costs are excluded from fair value under IFRS 13.

  1. A$485,000Correct
  2. B$480,000
  3. C$500,000
  4. D$475,000

Explanation

Market X is the principal market (greatest volume and activity), so its price is used. Fair value is the price adjusted for transport costs but not transaction costs: 500,000 - 15,000 = 485,000. $480,000 (520-40... ) is wrong as it uses the most advantageous market; $500,000 ignores transport costs.

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