IFRS 13 clarifies that the concepts of highest and best use and valuation

Ifrs 13 clarifies that the concepts of highest and

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IFRS 13 clarifies that the concepts of highest and best use and valuation premise in IFRS 13 are only relevant for non-financial assets (and not liabilities or financial assets), because: - Financial assets have specific contractual terms; they do not have alternative uses. Changing the characteristics (i.e. contractual terms) of the financial asset causes the item to become a different asset and the objective of a fair value measurement is to measure the asset as it exists as at the measurement date. - The different ways by which an entity may relieve itself of a liability (e.g. repayment) are not alternative uses. In addition, entity-specific advantages (or disadvantages) that enable an entity to fulfil a liability more or less efficiently than other market participants are not considered in a fair value measurement. 3.4.1. What is the highest and best use of a non-financial asset? The way in which the reporting entity uses a non-financial asset may not be the way market participants would use the asset. As such, the standard requires that the fair value of a non-financial asset be measured by considering the highest and best use from a market participant perspective. Highest and best use = The way in which the reporting entity uses a non-financial asset may not be the way market participants would use the asset. As such, the standard requires that the fair value of a non-financial asset be measured by considering the highest and best use from a market participant perspective.
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According IFRS 13, highest and best use must be: - Physically possible; - Legally possible; - Financially feasible (the asset must result in the market participant obtaining an appropriate return from the asset). Importantly, the highest and best use is determined from a market participant perspective. Therefore, the highest and best use may not be the entity’s current use. If the highest and best use of the asset is something other than its current use: - Any costs to transform the non-financial asset (e.g. obtaining a new zoning permit or converting the asset to the alternative use) and profit expectations from a market participant's perspective are also considered in the fair value measurement. - An entity must disclose that fact and its basis. 3.4.2. What is the valuation premise? = The fair value of the non-financial asset will either be measured assuming market participants would purchase the asset to benefit from the use or sale of the asset on a stand-alone basis or in combination with other assets (or other assets and liabilities). (p. 79 examples) Stand-alone valuation premise = The fair value of the asset is the price that would be received in a current transaction to sell the asset to market participants who would use the asset on a stand-alone basis.
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