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

Lumen plc must measure the fair value of its own equity instrument, which is not traded, as part of an acquisition. No quoted price exists for the identical instrument, and no identical item is held by another party as an asset. Which approach does IFRS 13 require?

Lumen should use a valuation technique, such as a market or income approach, from the viewpoint of a market participant holding the equity instrument as an asset. Nominal value, book equity or directors' opinion do not reflect a market participant's exit price.

  1. AUse a valuation technique from the viewpoint of a market participant that holds the instrument as an asset, such as an income or market approachCorrect
  2. BMeasure it at nominal value
  3. CMeasure it at the amount Lumen's directors consider fair
  4. DMeasure it at the carrying amount of equity in Lumen's statement of financial position

Explanation

IFRS 13 applies the same hierarchy to own equity: quoted price, then the identical item held as an asset by another party, then a valuation technique (market or income approach) from the perspective of a market participant holding it as an asset. Nominal value, directors' view and book equity are not market-participant measures.

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