Tutorial Questions on IFRS 13
1. Mion Ltd holds an asset which could be sold in one of two markets. Information about
these market and the costs that would be incurred if sale were to be made is as follows:
MARKET MARKET
A B
Selling price 650 625
Transport costs 50 50
Transaction costs 75 25
Required:
a. What fair value would be used to measure the asset if Market A were the principal
market?
b. What fair value would be used to measure the asset if no principal market could be
identified?
2. An asset is sold in two different active market at different prices. An entity enters into
transaction in both markets and can access the price in those markets for the asset at the
measurement date as follows:
MARKET 1 MARKET 2
Price 26 25
Transaction costs (3) (1)
Transport costs (2) (2)
Net price received (21) 22
Required:
What is the fair value of the asset if:
a. market 1 is the principal market
b. no principal market can be determined
3. Osu Ltd acquired a plot of land developed for industrial use as a factory. A factory with
similar facilities and access has recently been sold for GH¢ 50 million. Similar sites nearby
have recently been developed for residential use at site for high rise apartment buildings.
Osu Ltd determines that the land for residential use at a cost of GH¢10 million (to cover
demolition of the factory and legal cost associated with the charge of the change of use).
The plot of land would then be worth GH¢ 62 million.
Required
Determine the fair value of the assets.
4. Osino Ltd has just acquired a company, which comprises a farming and a mining business.
Osino Ltd wishes advice on how to place a fair value on some of the asset acquired.
One of the asset is piece of land, which is currently used for farming. The fair value of the
land if used for farming is GH¢5 million. If the land is used for farming purposes, a tax
credit arises annually, which is based upon the lower of 15% of the fair value of the land
or GH¢500,000 at the current tax rate. The current tax rate in the jurisdiction is 20%.
Osino Ltd has determined that market participants would consider that the land could have
an alternative use for residential purposes. The fair value of the land for residential
purposes before the associated costs id thought to be GH¢ 7.4 million. In order to transform
the land from farming to residential use, there would be a legal costs of GH¢200,000, a
viability analysis cost of GH¢300,000 and the cost of demolition of the farm buildings of
GH¢ 100,000.
Additionally, permission for residential use has not been formally given by the legal
authority and because of this market participant have indicated that the fair value of the
land, after the above costs. Would be discounted by 20% because of the risk if not obtaining
a planning permission. In addition, Osino Ltd has acquired the brand name associated with
the produce from the farm.
Osino Ltd has decided to discontinue the brand on the assumption that it will gain increased
revenues from its own brands. Osino Ltd has determined that if it ceases to use the brand,
then the indirect benefits will be GH¢ 20 million. If it continues to use the brand, then the
direct benefit will be GH¢ 17 million.
Required
Discuss the way in which Osino Ltd should measure the fair value of the above assets with
reference to the principles of IFRS 13 Fair Value Measurement
5. Five Quarters has purchased 100% of the ordinary shares of the three halves and is trying
to determine the fair value of the assets at the acquisition date. Three halves owns land that
is currently developed for industrial use (as high-rise as apartment buildings). The land
owned by three halves does not have a planning permission for residential use, although
permission has been granted for similar plots of land. The fair value of Three Halves’ land
as a vacant site for residential development is GH¢ 6million. However, transformation
costs of GH¢0.3million would need to be incurred to get the land into this condition.
Required: How should the fair value of the land be determined?
