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

Kora Ltd measures a liability at fair value under IFRS 13. Which statement correctly describes the assumption underlying that fair value?

Fair value of a liability assumes transfer to a market participant at the measurement date with the obligation remaining outstanding, so it reflects the entity's own non-performance risk, including its credit risk. It is not a settlement or extinguishment amount, and credit risk is not excluded.

  1. AThe liability is settled with the counterparty on the measurement date at its carrying amount
  2. BThe liability is transferred to a market participant at the measurement date and remains outstanding, so the entity's own non-performance risk is reflectedCorrect
  3. CThe liability is extinguished by the entity, so non-performance risk is excluded
  4. DThe liability is transferred to a market participant, with the entity's own credit risk excluded to avoid gains on deterioration

Explanation

IFRS 13 assumes the liability is transferred to a market participant and the obligation continues, not settled. Fair value therefore includes the effect of the entity's non-performance risk, including its own credit risk. Excluding credit risk contradicts the standard.

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