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

Costs of disposal to be deducted in arriving at fair value less costs of disposal include:

• legal costs;
• stamp duty or similar transaction taxes;
• costs of removing the asset; and
• other direct incremental costs to bring the asset into condition for its sale.

Fair value less costs of disposal for revalued assets

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.

• If the disposal costs are negligible, the recoverable amount of a revalued asset is, by definition, close to, or greater than, its revalued amount. In this case, after the revaluation requirements have been applied, it is unlikely that the revalued asset is impaired and recoverable amount need not be estimated.
• If the disposal costs are not negligible, the fair value less costs of disposal of the revalued asset is necessarily less than its fair value. Therefore, the revalued asset will be impaired if its value in use is less than its revalued amount. In this case, after the revaluation requirements have been applied, the entity should apply IAS 36 to determine whether the asset may be impaired.

Fair value less costs of disposal – obligation for disposal costs already recognized When an entity already had an obligation to remove an asset at the end of its life, a provision will have been recognized and those costs will already be included in the carrying amount of the asset. Accordingly, in such circumstances, either: the costs should not be included as costs of disposal in arriving at fair value less costs of disposal; or in some cases (e.g., when the buyer will have to assume the liability), it may be necessary to deduct the carrying amount of the liability from that of the asset in order to determine a carrying amount that can be compared with fair value less costs of disposal, in accordance with IAS 36.

Contrasting fair value and value in use

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:

• 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 other assets;
• legal rights or legal restrictions that are specific only to the current owner of the asset; and
• tax benefits or tax burdens that are specific to the current owner of the asset.