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

Zenith plc owns a office building and wishes to measure its fair value under IFRS 13. Zenith intends to keep using the building as offices, but market participants would obtain a higher price by converting it to apartments, which is physically possible, legally permitted and financially feasible. How should Zenith determine fair value?

Zenith should use the apartment conversion value. IFRS 13 measures a non-financial asset at its highest and best use from a market participant perspective, provided the use is physically possible, legally permissible and financially feasible, regardless of the entity's own intended use.

  1. AUse the value based on Zenith's own continued office use, as that is the entity's intention
  2. BUse the apartment conversion value, because the highest and best use is assessed from a market participant perspectiveCorrect
  3. CUse the lower of office value and conversion value, applying prudence
  4. DUse depreciated replacement cost of the building as offices

Explanation

IFRS 13 requires fair value to reflect the highest and best use by market participants, being physically possible, legally permissible and financially feasible, even if the entity intends a different use. The entity's own intention is therefore irrelevant, and prudence does not apply to fair value measurement.

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