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

Orion Ltd acquired a business in a business combination. A building acquired has a fair value of $9m based on its highest and best use as a redevelopment site. Orion intends to continue using it as a warehouse, where its value in use is $7m. How should Orion measure the building in the acquisition accounting under IFRS 3 and IFRS 13?

The building is measured at $9m. IFRS 3 requires acquisition-date fair value, and IFRS 13 values a non-financial asset at its highest and best use by market participants, not the acquirer's intended use. The $7m value in use is entity-specific and is not used.

  1. AAt $7m, because the acquirer's intended use determines measurement
  2. BAt $9m, because fair value assumes highest and best use from a market participant's perspectiveCorrect
  3. CAt $8m, being the average of fair value and value in use
  4. DAt $7m, because IFRS 3 requires assets to be measured at value in use

Explanation

IFRS 3 requires identifiable assets to be measured at acquisition-date fair value, and IFRS 13 defines fair value using the highest and best use for market participants, regardless of the acquirer's intentions. The building is therefore recognised at $9m. Using $7m would reflect entity-specific intentions, which IFRS 13 excludes.

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