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

Zenith plc owns a specialised machine and wishes to measure its fair value under IFRS 13. Zenith intends to keep using the machine, but no market participant would use it in the same way. Which statement best describes the correct approach?

Fair value of a non-financial asset under IFRS 13 is based on its highest and best use from the perspective of market participants. The entity's own intended use is ignored if it differs, because fair value is a market-based, not entity-specific, measurement.

  1. AUse Zenith's own intended use because the machine is held for its own operations
  2. BMeasure fair value using the highest and best use from a market participant perspective, even if Zenith's use differsCorrect
  3. CUse the lower of Zenith's value in use and the cost of replacement
  4. DMeasure at the amount Zenith paid when it acquired the machine, adjusted for depreciation

Explanation

IFRS 13 requires fair value of a non-financial asset to reflect its highest and best use by market participants, which is physically possible, legally permissible and financially feasible. Zenith's intended use is irrelevant to the measurement. Option A fails because entity-specific intentions are not used, and value in use is an IAS 36 concept, not fair value.

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