Fair value measurement is covered by IFRS 13. This defines fair value of an asset as “the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date”.
Fair value considers the characteristics of the asset or CGU that a market participant would consider when pricing it. Such characteristics could include: the condition and location of the asset or CGU; and restrictions, if any, on the sale or use of the asset or CGU.
Fair value less costs of disposal differ from value in use. Value in use reflects the effect of factors that might be specific to the entity and would not be applicable to entities in general. Fair value reflects the assumptions that market participants would use when pricing the asset.
Fair value does not reflect any of the following factors to the extent that they would not generally be available to market participants: additional value derived from the grouping of assets (such as the creation of a portfolio of investment properties in different locations); synergies between the asset being measured and different assets; legal rights or legal restrictions that are specific only to the asset’s current owner; and tax benefits or tax burdens that are specific to the asset’s current owner.
Costs of disposal to be deducted in arriving at fair value less costs of disposal include:
As discussed, the scope of IAS 36 includes some assets carried at a revalued amount (e.g., property, plant and equipment accounted for under the revaluation model in IAS 16).
The only difference between a revalued asset’s fair value and its fair value less costs of disposal is the direct incremental costs attributable to the disposal of the asset.
Fair value differs from value in use. Fair value reflects the assumptions market participants would use when pricing the asset. In contrast, value in use reflects the effects of factors that may be specific to the entity and not applicable to entities in general. For example, fair value does not reflect any of the following factors to the extent that they would not be generally available to market participants: