ACCA Strategic Professional · Strategic Business Reporting (International) · Fair value measurement
Zephyr plc holds an equity investment in a listed company. The shares are actively traded on a stock exchange, and Zephyr can access the closing price on the measurement date for identical shares. Under IFRS 13 Fair Value Measurement, how should this fair value be classified in the fair value hierarchy?
The measurement is Level 1. IFRS 13 places unadjusted quoted prices in an active market for identical assets, accessible at the measurement date, at the top of the hierarchy. No adjustment or valuation technique is needed, so the lower levels do not apply.
- ALevel 1, because the input is a quoted price in an active market for an identical assetCorrect
- BLevel 2, because the price is observable but comes from an external source
- CLevel 3, because Zephyr must still apply judgement to the price
- DLevel 2, because the investment is a financial instrument
Explanation
IFRS 13 gives the highest priority to unadjusted quoted prices in active markets for identical assets that the entity can access at the measurement date. These are Level 1 inputs. Level 2 applies only where inputs other than Level 1 quoted prices are observable, such as prices for similar assets.
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