Skip to content

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

Zenith plc has issued a quoted bond that is traded as a liability by other parties as an asset, and there is an active market for the bond as an asset. Under IFRS 13, how should Zenith measure the fair value of the bond liability when no quoted price exists for the identical liability?

Zenith should use the quoted price of the identical bond held by another party as an asset, adjusted for any features specific to the asset that do not apply to the liability. IFRS 13 prioritises observable market prices for the identical item, even when viewed from the holder's side.

  1. AUse the quoted price of the identical item held by another party as an asset, adjusting where necessary for features specific to the assetCorrect
  2. BUse the amount Zenith would have to pay to settle the bond early, ignoring any credit risk
  3. CUse the original proceeds received on issue, as this is the only reliable measure
  4. DUse the carrying amount at amortised cost, because liabilities cannot be measured at fair value

Explanation

IFRS 13 states that where no quoted price exists for the identical liability but another party holds it as an asset, the entity uses the quoted price of that asset, adjusted for asset-specific features not applicable to the liability. The other options ignore the hierarchy or the transfer notion. Credit risk is not ignored for liabilities.

Did you get it right without looking?

One question tells you little. A timed set on Fair value measurement shows your real accuracy, how long you take and where you lose marks.

Practise Fair value measurementFree diagnostic mock

More Fair value measurement questions