Fair Value Measurement in Corporate Finance and Accounting

Running head: CORPORATE FINANCE AND ACCOUNTING
Corporate finance and accounting
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1CORPORATE FINANCE AND ACCOUNTING
Fair value measurement
AASB 13 fair value measurement (FVM) was released by IASB (international
accounting standard board). AASB 13 defines the term fair value, requires the
disclosures regarding fair value measurement and sets out framework for the
purpose of measurement of fair value in the single standard. AASB 13 defined the
fair value as the amount that is expected to be received from sell of an asset or that
is paid for transferring the liability under orderly transaction at the date of
measurement among the market participants (Aasb.gov.au 2019).
FVM is for specific liability or asset and hence, while measuring the fair
value the firm must consider the characteristics of the liability or asset. The
characteristics are considered if the market participants consider the characteristics
while valuing the liability or asset at date of measurement. For instance, the
characteristics include – (i) any restriction implied on use or sale of asset and (ii)
location as well as condition of asset. FVM presumes that liability or asset is
swapped under orderly transaction at the date of measurement among the market
participants (McInnis, Yu and Yust 2018). The transaction is for transferring the
liability or selling the asset at the date of measurement under the present market
scenario. Further, the FVM presumes that transaction for transferring the liability or
selling the asset are carried out either in principal market for the liability or asset or in
case where the principal market is not in existence, in the market that is most
advantageous for the liability or asset. The FVM for the non-financial asset considers
the ability of the market participants regarding generation of economic benefits
through using the asset at its best or highest use or through selling the asset to
another participant from the market that will use the asset in the best and highest
use (Suzuki and Kochiyama 2017).

2CORPORATE FINANCE AND ACCOUNTING
While the liability is presumed or the asset is obtained under exchange
transaction value is the value paid for obtaining the asset or received for presuming
the liability. On the contrary, fair value of liability or asset is the value that is expected
to be received from selling the asset or paying for transferring the liability. However,
the firm is not required to sell the asset at the value at which it was acquired. In the
same way, the firms are not required to transfer the liabilities at the value that was
received for presuming them (Aasb.gov.au 2019). In various instances the
transaction value is equal to the fair value such as while on the transaction date the
transaction for purchasing the asset is carried out under the market where the asset
will be sold. Valuation technique used by the entity shall be appropriate considering
the circumstances and adequate data for which are available for FVM. It shall be
made through optimising the usage of relevant identifiable inputs and minimising the
usage of irrelevant un-identifiable inputs. Further, the valuation technique used for
FVM shall be able to maximise the usage of relevant identifiable inputs and
minimising the usage of irrelevant un-identifiable inputs (Vergauwe and Gaeremynck
2019).
While determining that whether the fair value equals the price of the
transaction at initial recognition, the firm shall consider the particular factors related
with the transaction and to the liability or asset. Fair value and the transaction price
will not be equal if – (i) transaction is among the related parties, though value under
the related party transaction can be used as the input for FVM if the firm has
evidence regarding the fact that transaction was entered into under the market terms
(ii) transaction taken place under any pressure or the seller was forced for accepting
the value in transaction. (iii) market under which transaction tool place varies from
principal market (iv) account unit represented by transaction price varies with the