ACCA Strategic Professional · Strategic Business Reporting (International) · Fair value measurement
Zenith plc holds a building and is measuring its fair value under IFRS 13. Zenith plans to use the building as its head office, but market participants would obtain the highest value by converting it into apartments, which is legally and physically possible and financially feasible. How should Zenith measure the fair value?
Zenith should measure the building at its highest and best use as a market participant would, which is the apartment conversion. IFRS 13 ignores the entity's own intended use, provided the alternative use is physically possible, legally permissible and financially feasible.
- AUsing the head office use, because this is the entity's intended use
- BUsing the apartment conversion use, because fair value reflects the highest and best use from a market participant perspectiveCorrect
- CUsing the lower of the two uses, to apply prudence
- DUsing the average of the two values, because both uses are plausible
Explanation
IFRS 13 requires non-financial assets to be measured based on highest and best use from the perspective of market participants, even if the entity intends a different use. The use must be physically possible, legally permissible and financially feasible, which is met here. Using the entity's intended use would be wrong, as fair value is not entity-specific.
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