Financial Reporting: Fair Value and Intangible Assets

Financial Reporting
Financial Reporting

Financial reporting 2
Table of Contents
Question 1.............................................................................................................................................3
Question 3.............................................................................................................................................5
References:............................................................................................................................................6

Financial reporting 3
Question 1
Part (i)
Fair value can be used in three different contexts they are:
1. Fair value to be used for the purpose of accounting standards
2. Fair market value as commonly used in the ATO’s definition of market value and
3. Fair market value as used by courts.
Fair market value is defined under AASB 13 as the predictable price at which an arranged
transaction to transfer the asset or to sell the asset takes place amongst the market participants
under current market conditions. The market participants are comprised of willing buyers and
willing sellers. This definition of fair value emphases on the assets and liabilities and also
applies on the entity’s own equity instrument (AASB 13, 2015).
The AASB 116 (property, plant and equipment) says that fair value is applied to both the
assets and liabilities which are marketable and to those which are not marketable. The
measurement will be same for both the cases. Fair value is also termed as the exit price this is
identified at the measurement date. In the case where market for the asset is not available
then the fair value of that asset or liability can be identified using the price of the identical
asset or liability. Ideally fair value measurement is particularly for an asset or liability but that
can be violated for the assets which have no market available as their value will be taken
using the value of the identical assets or liabilities (AASB 116, 2009).
The tax laws do not define fair value in a general context it is defined in the definition part of
the Income Tax Assessment Act 1997. The fair value is defined in the tax laws as the
estimated amount for which an asset can be traded between the willing seller and willing
buyer on the reporting date. The price fixed need to be determined with the help of arm’s
length transaction, and where the parties have acted prudently, knowledgeably and the fair
dealing is there between parties.
The fair value which is considered by courts is an estimated price which a willing,
knowledgeable and unpressurised buyer is owing to pay to the knowledgeable, unpressurised
and willing seller. Fair market value also differs from intrinsic value. This is actually an