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

Orion Group acquires a subsidiary and must fair value an item of specialised equipment. Orion's finance team has the following views. Which view correctly reflects the IFRS 13 concept of the unit of account and the asset's valuation premise?

The equipment should be valued assuming use with complementary assets if market participants would do so, but excluding those assets' own value. IFRS 13 requires the valuation premise to reflect highest and best use, which may be in combination with other assets.

  1. AThe equipment's fair value should be reduced by Orion's costs of dismantling and moving it to the buyer
  2. BThe equipment should be valued assuming it is used together with complementary assets, if that is its highest and best use for market participants, without adding the value of those other assetsCorrect
  3. CThe equipment should be valued on a stand-alone basis only, ignoring any complementary assets that market participants would use with it
  4. DThe equipment should be valued at the price Orion originally paid, adjusted for inflation

Explanation

Under IFRS 13 the highest and best use may be in combination with other assets, and fair value of the asset is measured on that basis, though it does not include the value of the complementary assets themselves. Stand-alone only valuation ignores the premise. Transaction costs are excluded and original cost is not a fair value basis.

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