ACCA Strategic Professional · Strategic Business Reporting (International) · Non-current assets
Orion Group acquires Sable Co and must measure an acquired brand at fair value under IFRS 3. Orion plans to stop using the brand to protect its own competing brand. Market participants would, however, continue to use the brand and would pay $12m for it. Orion's own value in use if it shelved the brand is $3m. Which statement is correct?
The brand is recognised at $12m. Fair value under IFRS 13 reflects how market participants would use the asset, so Orion's intention to shelve it defensively does not reduce the initial measurement. The intention only affects the subsequent useful life and amortisation.
- ARecognise the brand at $3m because Orion's intention governs measurement
- BRecognise the brand at $12m because fair value reflects market participant use, not Orion's intentionCorrect
- CRecognise the brand at $9m, the difference between the two values
- DDo not recognise the brand because it will not be used
Explanation
IFRS 13 and IFRS 3 require defensively held assets to be measured at fair value based on the highest and best use by market participants, even if the acquirer does not intend to use them that way. The $12m reflects that. Using $3m applies entity-specific intentions, which IFRS 13 excludes. The asset is recognised and the intention affects subsequent amortisation, not initial fair value.
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