FRS 13

LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA

MALAYSIAN ACCOUNTING STANDARDS BOARD

Financial Reporting Standard 13

Fair Value Measurement

© Malaysian Accounting Standards Board 2011

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This Standard contains material in which the IFRS Foundation holds

copyright and which has been reproduced in this Standard with the
permission of the IFRS Foundation. Copyright in the International
Financial Reporting Standards (including International Accounting
Standards and SIC and IFRIC Interpretations), International Accounting
Standards Board (IASB) Exposure Drafts, and other IASB publications
belong to the IFRS Foundation.

All rights are reserved. No part of this publication may be reproduced,

stored in a retrieval system or transmitted in any form or by any means
without the prior permission in writing to MASB or as may be expressly
permitted by law or under terms agreed with the appropriate reprographics
rights organisation. No part of the materials incorporated in this
publication, the copyright of which is held by the IFRS Foundation, may
be reproduced, stored in a retrieval system or transmitted in any form or by
any means without the prior permission in writing to the IFRS Foundation
or as may be expressly permitted by law or under terms agreed with the
appropriate reprographics rights organisation.

FRS 13 Fair Value Measurement is issued by the MASB in respect of its

application in Malaysia.

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CONTENTS
paragraphs
Preface
INTRODUCTION

FINANCIAL REPORTING STANDARD 13

FAIR VALUE MEASUREMENT
OBJECTIVE 1–4
SCOPE 5–8
MEASUREMENT 9–90
Definition of fair value 9–10
The asset or liability 11–14
The transaction 15–21
Market participants 22–23
The price 24–26
Application to non-financial assets 27–33
Application to liabilities and an entity’s own equity instruments 34–47
Application to financial assets and financial liabilities with
offsetting positions in market risks or counterparty credit risk 48–56
Fair value at initial recognition 57–60
Valuation techniques 61–66
Inputs to valuation techniques 67–71
Fair value hierarchy 72–90
DISCLOSURE 91–99
APPENDICES
A Defined terms
B Application guidance
C Effective date and transition

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Style

Additions to IFRSs are clearly identified and would be made in a manner that
preserves the format and structure of the IFRSs.

If a new paragraph is added, that paragraph would be labelled with the preceding
paragraph number followed by capitalised alphabets and the word “added” is
included at the right side of the paragraph. If a paragraph is deleted, the text would
be marked as deleted text by the inclusion of the word “deleted” at the right side of
the paragraph and the reason for the deletion is explained at the end of the
paragraph. [New paragraph or deleted paragraph without the indication of
“added” or “deleted” at the right side of the paragraph is amendment made by the
IASB.]

Additions or deletions made within the paragraph in IFRSs would be shaded and
underlined or struck through respectively. [Those additions and deletions which are
underlined or struck through without shading are amendments made by the IASB.]

Other than the bare FRS which uses MASB nomenclature, the bases for
conclusions, illustrative examples, guidance notes or any other additional
explanatory material which does not expressly state it is an “integral part of the
FRS” uses nomenclature of the IASB ie IFRS, IAS, IFRIC or SIC.

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Financial Reporting Standard 13 Fair Value Measurement (FRS 13) is

set out in paragraphs 1–99 and Appendices A–C. All the paragraphs
have equal authority. Paragraphs in bold type state the main principles.
Terms defined in Appendix A are in italics the first time they appear in
the FRS. Definitions of other terms are given in the Glossary for
Financial Reporting Standards. FRS 13 should be read in the context of
its objective and the Basis for Conclusions, the Foreword to Financial
Reporting Standards and the Conceptual Framework for Financial
Reporting. FRS 108 Accounting Policies, Changes in Accounting
Estimates and Errors provides a basis for selecting and applying
accounting policies in the absence of explicit guidance.

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Introduction

Overview
IN1 International Financial Reporting Standard 13 Fair Value
Measurement (IFRS 13):
(a) defines fair value;
(b) sets out in a single IFRS a framework for measuring fair
value; and
(c) requires disclosures about fair value measurements.

IN2 The IFRS applies to IFRSs that require or permit fair value
measurements or disclosures about fair value measurements (and
measurements, such as fair value less costs to sell, based on fair
value or disclosures about those measurements), except in
specified circumstances.

IN3 The IFRS is to be applied for annual periods beginning on or after

1 January 2013. Earlier application is permitted.

IN4 The IFRS explains how to measure fair value for financial
reporting. It does not require fair value measurements in addition
to those already required or permitted by other IFRSs and is not
intended to establish valuation standards or affect valuation
practices outside financial reporting.

IASB’s reasons for issuing the IFRS

IN5 Some IFRSs require or permit entities to measure or disclose the
fair value of assets, liabilities or their own equity instruments.
Because those IFRSs were developed over many years, the
requirements for measuring fair value and for disclosing
information about fair value measurements were dispersed and in
many cases did not articulate a clear measurement or disclosure
objective.

IN6 As a result, some of those IFRSs contained limited guidance about

how to measure fair value, whereas others contained extensive
guidance and that guidance was not always consistent across those

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IFRSs that refer to fair value. Inconsistencies in the requirements

for measuring fair value and for disclosing information about fair
value measurements have contributed to diversity in practice and
have reduced the comparability of information reported in
financial statements. IFRS 13 remedies that situation.

IN7 Furthermore, in 2006 the International Accounting Standards

Board (IASB) and the US national standard-setter, the Financial
Accounting Standards Board (FASB), published a Memorandum
of Understanding, which has served as the foundation of the
boards’ efforts to create a common set of high quality global
accounting standards. Consistent with the Memorandum of
Understanding and the boards’ commitment to achieving that goal,
IFRS 13 is the result of the work by the IASB and the FASB to
develop common requirements for measuring fair value and for
disclosing information about fair value measurements in
accordance with IFRSs and US generally accepted accounting
principles (GAAP).

Main features of FRS 13

IN8 FRS 13 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (ie an exit
price).

IN9 That definition of fair value emphasises that fair value is a market-
based measurement, not an entity-specific measurement. When
measuring fair value, an entity uses the assumptions that market
participants would use when pricing the asset or liability under
current market conditions, including assumptions about risk. As a
result, an entity’s intention to hold an asset or to settle or otherwise
fulfil a liability is not relevant when measuring fair value.

IN10 The FRS explains that a fair value measurement requires an entity
to determine the following:
(a) the particular asset or liability being measured;
(b) for a non-financial asset, the highest and best use of the asset
and whether the asset is used in combination with other
assets or on a stand-alone basis;

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(c) the market in which an orderly transaction would take place

for the asset or liability; and
(d) the appropriate valuation technique(s) to use when measuring
fair value. The valuation technique(s) used should maximise
the use of relevant observable inputs and minimise
unobservable inputs. Those inputs should be consistent with
the inputs a market participant would use when pricing the
asset or liability.

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Financial Reporting Standard 13

Fair Value Measurement

Objective
1 This FRS:
(a) defines fair value;
(b) sets out in a single FRS a framework for measuring fair
value; and
(c) requires disclosures about fair value measurements.

2 Fair value is a market-based measurement, not an entity-specific

measurement. For some assets and liabilities, observable market
transactions or market information might be available. For other
assets and liabilities, observable market transactions and market
information might not be available. However, the objective of a
fair value measurement in both cases is the same—to estimate the
price at which an orderly transaction to sell the asset or to transfer
the liability would take place between market participants at the
measurement date under current market conditions (ie an exit price
at the measurement date from the perspective of a market
participant that holds the asset or owes the liability).

3 When a price for an identical asset or liability is not observable, an

entity measures fair value using another valuation technique that
maximises the use of relevant observable inputs and minimises the
use of unobservable inputs. Because fair value is a market-based
measurement, it is measured using the assumptions that market
participants would use when pricing the asset or liability,
including assumptions about risk. As a result, an entity’s intention
to hold an asset or to settle or otherwise fulfil a liability is not
relevant when measuring fair value.

4 The definition of fair value focuses on assets and liabilities

because they are a primary subject of accounting measurement. In
addition, this FRS shall be applied to an entity’s own equity
instruments measured at fair value.

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Scope
5 This FRS applies when another FRS requires or permits fair
value measurements or disclosures about fair value
measurements (and measurements, such as fair value less costs
to sell, based on fair value or disclosures about those
measurements), except as specified in paragraphs 6 and 7.

6 The measurement and disclosure requirements of this FRS do not

apply to the following:
(a) share-based payment transactions within the scope of FRS 2
Share-based Payment;
(b) leasing transactions within the scope of FRS 117 Leases; and
(c) measurements that have some similarities to fair value but are
not fair value, such as net realisable value in FRS 102
Inventories or value in use in FRS 136 Impairment of Assets.

7 The disclosures required by this FRS are not required for the
following:
(a) plan assets measured at fair value in accordance with
FRS 119 Employee Benefits;
(b) retirement benefit plan investments measured at fair value in
accordance with FRS 126 Accounting and Reporting by
Retirement Benefit Plans; and
(c) assets for which recoverable amount is fair value less costs of
disposal in accordance with FRS 136.

8 The fair value measurement framework described in this FRS

applies to both initial and subsequent measurement if fair value is
required or permitted by other FRSs.

Measurement

Definition of fair value

9 This FRS defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.

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10 Paragraph B2 describes the overall fair value measurement

approach.

The asset or liability

11 A fair value measurement is for a particular asset or liability.
Therefore, when measuring fair value an entity shall take into
account the characteristics of the asset or liability if market
participants would take those characteristics into account
when pricing the asset or liability at the measurement date.
Such characteristics include, for example, the following:
(a) the condition and location of the asset; and
(b) restrictions, if any, on the sale or use of the asset.

12 The effect on the measurement arising from a particular

characteristic will differ depending on how that characteristic
would be taken into account by market participants.

13 The asset or liability measured at fair value might be either of the

following:
(a) a stand-alone asset or liability (eg a financial instrument or a
non-financial asset); or
(b) a group of assets, a group of liabilities or a group of assets
and liabilities (eg a cash-generating unit or a business).

14 Whether the asset or liability is a stand-alone asset or liability, a

group of assets, a group of liabilities or a group of assets and
liabilities for recognition or disclosure purposes depends on its
unit of account. The unit of account for the asset or liability shall
be determined in accordance with the FRS that requires or permits
the fair value measurement, except as provided in this FRS.

The transaction
15 A fair value measurement assumes that the asset or liability is
exchanged in an orderly transaction between market
participants to sell the asset or transfer the liability at the
measurement date under current market conditions.

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16 A fair value measurement assumes that the transaction to sell

the asset or transfer the liability takes place either:
(a) in the principal market for the asset or liability; or
(b) in the absence of a principal market, in the most
advantageous market for the asset or liability.

17 An entity need not undertake an exhaustive search of all possible

markets to identify the principal market or, in the absence of a
principal market, the most advantageous market, but it shall take
into account all information that is reasonably available. In the
absence of evidence to the contrary, the market in which the entity
would normally enter into a transaction to sell the asset or to
transfer the liability is presumed to be the principal market or, in
the absence of a principal market, the most advantageous market.

18 If there is a principal market for the asset or liability, the fair value
measurement shall represent the price in that market (whether that
price is directly observable or estimated using another valuation
technique), even if the price in a different market is potentially
more advantageous at the measurement date.

19 The entity must have access to the principal (or most

advantageous) market at the measurement date. Because different
entities (and businesses within those entities) with different
activities may have access to different markets, the principal (or
most advantageous) market for the same asset or liability might be
different for different entities (and businesses within those
entities). Therefore, the principal (or most advantageous) market
(and thus, market participants) shall be considered from the
perspective of the entity, thereby allowing for differences between
and among entities with different activities.

20 Although an entity must be able to access the market, the entity

does not need to be able to sell the particular asset or transfer the
particular liability on the measurement date to be able to measure
fair value on the basis of the price in that market.

21 Even when there is no observable market to provide pricing

information about the sale of an asset or the transfer of a liability
at the measurement date, a fair value measurement shall assume
that a transaction takes place at that date, considered from the

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perspective of a market participant that holds the asset or owes the

liability. That assumed transaction establishes a basis for
estimating the price to sell the asset or to transfer the liability.

Market participants
22 An entity shall measure the fair value of an asset or a liability
using the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.

23 In developing those assumptions, an entity need not identify

specific market participants. Rather, the entity shall identify
characteristics that distinguish market participants generally,
considering factors specific to all the following:
(a) the asset or liability;
(b) the principal (or most advantageous) market for the asset or
liability; and
(c) market participants with whom the entity would enter into a
transaction in that market.

The price
24 Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction in the
principal (or most advantageous) market at the measurement
date under current market conditions (ie an exit price)
regardless of whether that price is directly observable or
estimated using another valuation technique.

25 The price in the principal (or most advantageous) market used to

measure the fair value of the asset or liability shall not be adjusted
for transaction costs. Transaction costs shall be accounted for in
accordance with other FRSs. Transaction costs are not a
characteristic of an asset or a liability; rather, they are specific to a
transaction and will differ depending on how an entity enters into a
transaction for the asset or liability.

26 Transaction costs do not include transport costs. If location is a

characteristic of the asset (as might be the case, for example, for a

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commodity), the price in the principal (or most advantageous)

market shall be adjusted for the costs, if any, that would be incurred
to transport the asset from its current location to that market.

Application to non-financial assets

Highest and best use for non-financial assets

27 A fair value measurement of a non-financial asset takes into

account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the
asset in its highest and best use.

28 The highest and best use of a non-financial asset takes into account
the use of the asset that is physically possible, legally permissible
and financially feasible, as follows:
(a) A use that is physically possible takes into account the
physical characteristics of the asset that market participants
would take into account when pricing the asset (eg the
location or size of a property).
(b) A use that is legally permissible takes into account any legal
restrictions on the use of the asset that market participants
would take into account when pricing the asset (eg the
zoning regulations applicable to a property).
(c) A use that is financially feasible takes into account whether a
use of the asset that is physically possible and legally
permissible generates adequate income or cash flows (taking
into account the costs of converting the asset to that use) to
produce an investment return that market participants would
require from an investment in that asset put to that use.

29 Highest and best use is determined from the perspective of market

participants, even if the entity intends a different use. However, an
entity’s current use of a non-financial asset is presumed to be its
highest and best use unless market or other factors suggest that a
different use by market participants would maximise the value of
the asset.

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30 To protect its competitive position, or for other reasons, an entity

may intend not to use an acquired non-financial asset actively or it
may intend not to use the asset according to its highest and best
use. For example, that might be the case for an acquired intangible
asset that the entity plans to use defensively by preventing others
from using it. Nevertheless, the entity shall measure the fair value
of a non-financial asset assuming its highest and best use by
market participants.

Valuation premise for non-financial assets

31 The highest and best use of a non-financial asset establishes the

valuation premise used to measure the fair value of the asset, as
follows:
(a) The highest and best use of a non-financial asset might
provide maximum value to market participants through its
use in combination with other assets as a group (as installed
or otherwise configured for use) or in combination with other
assets and liabilities (eg a business).
(i) If the highest and best use of the asset is to use the
asset in combination with other assets or with other
assets and liabilities, the fair value of the asset is the
price that would be received in a current transaction to
sell the asset assuming that the asset would be used
with other assets or with other assets and liabilities and
that those assets and liabilities (ie its complementary
assets and the associated liabilities) would be available
to market participants.
(ii) Liabilities associated with the asset and with the
complementary assets include liabilities that fund
working capital, but do not include liabilities used to
fund assets other than those within the group of assets.
(iii) Assumptions about the highest and best use of a non-
financial asset shall be consistent for all the assets (for
which highest and best use is relevant) of the group of
assets or the group of assets and liabilities within
which the asset would be used.
(b) The highest and best use of a non-financial asset might
provide maximum value to market participants on a

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stand-alone basis. If the highest and best use of the asset is to

use it on a stand-alone basis, the fair value of the asset is the
price that would be received in a current transaction to sell
the asset to market participants that would use the asset on a
stand-alone basis.

32 The fair value measurement of a non-financial asset assumes that

the asset is sold consistently with the unit of account specified in
other FRSs (which may be an individual asset). That is the case
even when that fair value measurement assumes that the highest
and best use of the asset is to use it in combination with other
assets or with other assets and liabilities because a fair value
measurement assumes that the market participant already holds the
complementary assets and the associated liabilities.

33 Paragraph B3 describes the application of the valuation premise

concept for non-financial assets.

Application to liabilities and an entity’s own

equity instruments
General principles

34 A fair value measurement assumes that a financial or non-

financial liability or an entity’s own equity instrument (eg
equity interests issued as consideration in a business
combination) is transferred to a market participant at the
measurement date. The transfer of a liability or an entity’s
own equity instrument assumes the following:
(a) A liability would remain outstanding and the market
participant transferee would be required to fulfil the
obligation. The liability would not be settled with the
counterparty or otherwise extinguished on the
measurement date.
(b) An entity’s own equity instrument would remain
outstanding and the market participant transferee would
take on the rights and responsibilities associated with the
instrument. The instrument would not be cancelled or
otherwise extinguished on the measurement date.

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35 Even when there is no observable market to provide pricing

information about the transfer of a liability or an entity’s own equity
instrument (eg because contractual or other legal restrictions prevent
the transfer of such items), there might be an observable market for
such items if they are held by other parties as assets (eg a corporate
bond or a call option on an entity’s shares).

36 In all cases, an entity shall maximise the use of relevant observable

inputs and minimise the use of unobservable inputs to meet the
objective of a fair value measurement, which is to estimate the price
at which an orderly transaction to transfer the liability or equity
instrument would take place between market participants at the
measurement date under current market conditions.

Liabilities and equity instruments held by other parties as assets

37 When a quoted price for the transfer of an identical or a

similar liability or entity’s own equity instrument is not
available and the identical item is held by another party as an
asset, an entity shall measure the fair value of the liability or
equity instrument from the perspective of a market
participant that holds the identical item as an asset at the
measurement date.

38 In such cases, an entity shall measure the fair value of the liability
or equity instrument as follows:
(a) using the quoted price in an active market for the identical
item held by another party as an asset, if that price is
available.
(b) if that price is not available, using other observable inputs,
such as the quoted price in a market that is not active for the
identical item held by another party as an asset.
(c) if the observable prices in (a) and (b) are not available, using
another valuation technique, such as:
(i) an income approach (eg a present value technique that
takes into account the future cash flows that a market
participant would expect to receive from holding the
liability or equity instrument as an asset; see
paragraphs B10 and B11).

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(ii) a market approach (eg using quoted prices for similar

liabilities or equity instruments held by other parties as
assets; see paragraphs B5–B7).

39 An entity shall adjust the quoted price of a liability or an entity’s

own equity instrument held by another party as an asset only if
there are factors specific to the asset that are not applicable to the
fair value measurement of the liability or equity instrument. An
entity shall ensure that the price of the asset does not reflect the
effect of a restriction preventing the sale of that asset. Some
factors that may indicate that the quoted price of the asset should
be adjusted include the following:
(a) The quoted price for the asset relates to a similar (but not
identical) liability or equity instrument held by another party as
an asset. For example, the liability or equity instrument may
have a particular characteristic (eg the credit quality of the
issuer) that is different from that reflected in the fair value of
the similar liability or equity instrument held as an asset.
(b) The unit of account for the asset is not the same as for the
liability or equity instrument. For example, for liabilities, in
some cases the price for an asset reflects a combined price
for a package comprising both the amounts due from the
issuer and a third-party credit enhancement. If the unit of
account for the liability is not for the combined package, the
objective is to measure the fair value of the issuer’s liability,
not the fair value of the combined package. Thus, in such
cases, the entity would adjust the observed price for the asset
to exclude the effect of the third-party credit enhancement.

Liabilities and equity instruments not held by other parties as

assets

40 When a quoted price for the transfer of an identical or a

similar liability or entity’s own equity instrument is not
available and the identical item is not held by another party as
an asset, an entity shall measure the fair value of the liability
or equity instrument using a valuation technique from the
perspective of a market participant that owes the liability or
has issued the claim on equity.

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41 For example, when applying a present value technique an entity

might take into account either of the following:
(a) the future cash outflows that a market participant would
expect to incur in fulfilling the obligation, including the
compensation that a market participant would require for
taking on the obligation (see paragraphs B31–B33).
(b) the amount that a market participant would receive to enter
into or issue an identical liability or equity instrument, using
the assumptions that market participants would use when
pricing the identical item (eg having the same credit
characteristics) in the principal (or most advantageous)
market for issuing a liability or an equity instrument with the
same contractual terms.

Non-performance risk
42 The fair value of a liability reflects the effect of non-performance
risk. Non-performance risk includes, but may not be limited to,
an entity’s own credit risk (as defined in FRS 7 Financial
Instruments: Disclosures). Non-performance risk is assumed to
be the same before and after the transfer of the liability.

43 When measuring the fair value of a liability, an entity shall take

into account the effect of its credit risk (credit standing) and any
other factors that might influence the likelihood that the obligation
will or will not be fulfilled. That effect may differ depending on
the liability, for example:
(a) whether the liability is an obligation to deliver cash (a
financial liability) or an obligation to deliver goods or
services (a non-financial liability).
(b) the terms of credit enhancements related to the liability, if
any.

44 The fair value of a liability reflects the effect of non-performance

risk on the basis of its unit of account. The issuer of a liability issued
with an inseparable third-party credit enhancement that is accounted
for separately from the liability shall not include the effect of the
credit enhancement (eg a third-party guarantee of debt) in the fair
value measurement of the liability. If the credit enhancement is

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accounted for separately from the liability, the issuer would take into
account its own credit standing and not that of the third party
guarantor when measuring the fair value of the liability.

Restriction preventing the transfer of a liability or

an entity’s own equity instrument
45 When measuring the fair value of a liability or an entity’s own
equity instrument, an entity shall not include a separate input or an
adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of the item. The effect of a restriction
that prevents the transfer of a liability or an entity’s own equity
instrument is either implicitly or explicitly included in the other
inputs to the fair value measurement.

46 For example, at the transaction date, both the creditor and the
obligor accepted the transaction price for the liability with full
knowledge that the obligation includes a restriction that prevents its
transfer. As a result of the restriction being included in the
transaction price, a separate input or an adjustment to an existing
input is not required at the transaction date to reflect the effect of the
restriction on transfer. Similarly, a separate input or an adjustment to
an existing input is not required at subsequent measurement dates to
reflect the effect of the restriction on transfer.

Financial liability with a demand feature

47 The fair value of a financial liability with a demand feature (eg a

demand deposit) is not less than the amount payable on demand,
discounted from the first date that the amount could be required to
be paid.

Application to financial assets and financial

liabilities with offsetting positions in market risks or
counterparty credit risk
48 An entity that holds a group of financial assets and financial
liabilities is exposed to market risks (as defined in FRS 7) and to
the credit risk (as defined in FRS 7) of each of the counterparties.
If the entity manages that group of financial assets and financial
liabilities on the basis of its net exposure to either market risks or

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credit risk, the entity is permitted to apply an exception to this FRS

for measuring fair value. That exception permits an entity to
measure the fair value of a group of financial assets and financial
liabilities on the basis of the price that would be received to sell a
net long position (ie an asset) for a particular risk exposure or paid
to transfer a net short position (ie a liability) for a particular risk
exposure in an orderly transaction between market participants at
the measurement date under current market conditions.
Accordingly, an entity shall measure the fair value of the group of
financial assets and financial liabilities consistently with how
market participants would price the net risk exposure at the
measurement date.

49 An entity is permitted to use the exception in paragraph 48 only if

the entity does all the following:
(a) manages the group of financial assets and financial liabilities
on the basis of the entity’s net exposure to a particular market
risk (or risks) or to the credit risk of a particular counterparty
in accordance with the entity’s documented risk management
or investment strategy;
(b) provides information on that basis about the group of
financial assets and financial liabilities to the entity’s key
management personnel, as defined in FRS 124 Related Party
Disclosures; and
(c) is required or has elected to measure those financial assets
and financial liabilities at fair value in the statement of
financial position at the end of each reporting period.

50 The exception in paragraph 48 does not pertain to financial

statement presentation. In some cases the basis for the presentation
of financial instruments in the statement of financial position
differs from the basis for the measurement of financial
instruments, for example, if an FRS does not require or permit
financial instruments to be presented on a net basis. In such cases
an entity may need to allocate the portfolio-level adjustments (see
paragraphs 53–56) to the individual assets or liabilities that make
up the group of financial assets and financial liabilities managed
on the basis of the entity’s net risk exposure. An entity shall
perform such allocations on a reasonable and consistent basis
using a methodology appropriate in the circumstances.

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51 An entity shall make an accounting policy decision in accordance

with FRS 108 Accounting Policies, Changes in Accounting
Estimates and Errors to use the exception in paragraph 48. An
entity that uses the exception shall apply that accounting policy,
including its policy for allocating bid-ask adjustments (see
paragraphs 53–55) and credit adjustments (see paragraph 56), if
applicable, consistently from period to period for a particular
portfolio.

52 The exception in paragraph 48 applies only to financial assets and

financial liabilities within the scope of FRS 139 Financial
Instruments: Recognition and Measurement or FRS 9 Financial
Instruments.

Exposure to market risks

53 When using the exception in paragraph 48 to measure the fair

value of a group of financial assets and financial liabilities
managed on the basis of the entity’s net exposure to a particular
market risk (or risks), the entity shall apply the price within the
bid-ask spread that is most representative of fair value in the
circumstances to the entity’s net exposure to those market risks
(see paragraphs 70 and 71).

54 When using the exception in paragraph 48, an entity shall ensure

that the market risk (or risks) to which the entity is exposed within
that group of financial assets and financial liabilities is
substantially the same. For example, an entity would not combine
the interest rate risk associated with a financial asset with the
commodity price risk associated with a financial liability because
doing so would not mitigate the entity’s exposure to interest rate
risk or commodity price risk. When using the exception in
paragraph 48, any basis risk resulting from the market risk
parameters not being identical shall be taken into account in the
fair value measurement of the financial assets and financial
liabilities within the group.

55 Similarly, the duration of the entity’s exposure to a particular market

risk (or risks) arising from the financial assets and financial
liabilities shall be substantially the same. For example, an entity that
uses a 12-month futures contract against the cash flows associated
with 12 months’ worth of interest rate risk exposure on a five-year

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financial instrument within a group made up of only those financial

assets and financial liabilities measures the fair value of the
exposure to 12-month interest rate risk on net basis and the
remaining interest rate risk exposure (ie years 2–5) on gross basis.

Exposure to the credit risk of a particular counterparty

56 When using the exception in paragraph 48 to measure the fair value

of a group of financial assets and financial liabilities entered into
with a particular counterparty, the entity shall include the effect of
the entity’s net exposure to the credit risk of that counterparty or the
counterparty’s net exposure to the credit risk of the entity in the fair
value measurement when market participants would take into
account any existing arrangements that mitigate credit risk exposure
in the event of default (eg a master netting agreement with the
counterparty or an agreement that requires the exchange of collateral
on the basis of each party’s net exposure to the credit risk of the
other party). The fair value measurement shall reflect market
participants’ expectations about the likelihood that such an
arrangement would be legally enforceable in the event of default.

Fair value at initial recognition

57 When an asset is acquired or a liability is assumed in an exchange
transaction for that asset or liability, the transaction price is the price
paid to acquire the asset or received to assume the liability (an entry
price). In contrast, the fair value of the asset or liability is the price
that would be received to sell the asset or paid to transfer the
liability (an exit price). Entities do not necessarily sell assets at the
prices paid to acquire them. Similarly, entities do not necessarily
transfer liabilities at the prices received to assume them.

58 In many cases the transaction price will equal the fair value (eg that
might be the case when on the transaction date the transaction to buy
an asset takes place in the market in which the asset would be sold).

59 When determining whether fair value at initial recognition equals

the transaction price, an entity shall take into account factors
specific to the transaction and to the asset or liability. Paragraph B4
describes situations in which the transaction price might not
represent the fair value of an asset or a liability at initial recognition.

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60 If another FRS requires or permits an entity to measure an asset or

a liability initially at fair value and the transaction price differs
from fair value, the entity shall recognise the resulting gain or loss
in profit or loss unless that FRS specifies otherwise.

Valuation techniques
61 An entity shall use valuation techniques that are appropriate in
the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.

62 The objective of using a valuation technique is to estimate the

price at which an orderly transaction to sell the asset or to transfer
the liability would take place between market participants at the
measurement date under current market conditions. Three widely
used valuation techniques are the market approach, the cost
approach and the income approach. The main aspects of those
approaches are summarised in paragraphs B5–B11. An entity shall
use valuation techniques consistent with one or more of those
approaches to measure fair value.

63 In some cases a single valuation technique will be appropriate (eg

when valuing an asset or a liability using quoted prices in an active
market for identical assets or liabilities). In other cases, multiple
valuation techniques will be appropriate (eg that might be the case
when valuing a cash-generating unit). If multiple valuation
techniques are used to measure fair value, the results (ie respective
indications of fair value) shall be evaluated considering the
reasonableness of the range of values indicated by those results. A
fair value measurement is the point within that range that is most
representative of fair value in the circumstances.

64 If the transaction price is fair value at initial recognition and a

valuation technique that uses unobservable inputs will be used to
measure fair value in subsequent periods, the valuation technique
shall be calibrated so that at initial recognition the result of the
valuation technique equals the transaction price. Calibration
ensures that the valuation technique reflects current market
conditions, and it helps an entity to determine whether an
adjustment to the valuation technique is necessary (eg there might

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be a characteristic of the asset or liability that is not captured by

the valuation technique). After initial recognition, when measuring
fair value using a valuation technique or techniques that use
unobservable inputs, an entity shall ensure that those valuation
techniques reflect observable market data (eg the price for a
similar asset or liability) at the measurement date.

65 Valuation techniques used to measure fair value shall be applied

consistently. However, a change in a valuation technique or its
application (eg a change in its weighting when multiple valuation
techniques are used or a change in an adjustment applied to a
valuation technique) is appropriate if the change results in a
measurement that is equally or more representative of fair value in
the circumstances. That might be the case if, for example, any of
the following events take place:
(a) new markets develop;
(b) new information becomes available;
(c) information previously used is no longer available;
(d) valuation techniques improve; or
(e) market conditions change.

66 Revisions resulting from a change in the valuation technique or its

application shall be accounted for as a change in accounting
estimate in accordance with FRS 108. However, the disclosures in
FRS 108 for a change in accounting estimate are not required for
revisions resulting from a change in a valuation technique or its
application.

Inputs to valuation techniques

General principles

67 Valuation techniques used to measure fair value shall

maximise the use of relevant observable inputs and minimise
the use of unobservable inputs.

68 Examples of markets in which inputs might be observable for

some assets and liabilities (eg financial instruments) include
exchange markets, dealer markets, brokered markets and principal-
to-principal markets (see paragraph B34).

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69 An entity shall select inputs that are consistent with the

characteristics of the asset or liability that market participants
would take into account in a transaction for the asset or liability
(see paragraphs 11 and 12). In some cases those characteristics
result in the application of an adjustment, such as a premium or
discount (eg a control premium or non-controlling interest
discount). However, a fair value measurement shall not
incorporate a premium or discount that is inconsistent with the unit
of account in the FRS that requires or permits the fair value
measurement (see paragraphs 13 and 14). Premiums or discounts
that reflect size as a characteristic of the entity’s holding
(specifically, a blockage factor that adjusts the quoted price of an
asset or a liability because the market’s normal daily trading
volume is not sufficient to absorb the quantity held by the entity,
as described in paragraph 80) rather than as a characteristic of the
asset or liability (eg a control premium when measuring the fair
value of a controlling interest) are not permitted in a fair value
measurement. In all cases, if there is a quoted price in an active
market (ie a Level 1 input) for an asset or a liability, an entity shall
use that price without adjustment when measuring fair value,
except as specified in paragraph 79.

Inputs based on bid and ask prices

70 If an asset or a liability measured at fair value has a bid price and

an ask price (eg an input from a dealer market), the price within
the bid-ask spread that is most representative of fair value in the
circumstances shall be used to measure fair value regardless of
where the input is categorised within the fair value hierarchy (ie
Level 1, 2 or 3; see paragraphs 72–90). The use of bid prices for
asset positions and ask prices for liability positions is permitted,
but is not required.

71 This FRS does not preclude the use of mid-market pricing or other
pricing conventions that are used by market participants as a
practical expedient for fair value measurements within a bid-ask
spread.

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Fair value hierarchy

72 To increase consistency and comparability in fair value
measurements and related disclosures, this FRS establishes a fair
value hierarchy that categorises into three levels (see paragraphs
76–90) the inputs to valuation techniques used to measure fair
value. The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or
liabilities (Level 1 inputs) and the lowest priority to unobservable
inputs (Level 3 inputs).

73 In some cases, the inputs used to measure the fair value of an asset
or a liability might be categorised within different levels of the fair
value hierarchy. In those cases, the fair value measurement is
categorised in its entirety in the same level of the fair value
hierarchy as the lowest level input that is significant to the entire
measurement. Assessing the significance of a particular input to
the entire measurement requires judgement, taking into account
factors specific to the asset or liability. Adjustments to arrive at
measurements based on fair value, such as costs to sell when
measuring fair value less costs to sell, shall not be taken into
account when determining the level of the fair value hierarchy
within which a fair value measurement is categorised.

74 The availability of relevant inputs and their relative subjectivity

might affect the selection of appropriate valuation techniques (see
paragraph 61). However, the fair value hierarchy prioritises the
inputs to valuation techniques, not the valuation techniques used to
measure fair value. For example, a fair value measurement
developed using a present value technique might be categorised
within Level 2 or Level 3, depending on the inputs that are
significant to the entire measurement and the level of the fair value
hierarchy within which those inputs are categorised.

75 If an observable input requires an adjustment using an

unobservable input and that adjustment results in a significantly
higher or lower fair value measurement, the resulting measurement
would be categorised within Level 3 of the fair value hierarchy.
For example, if a market participant would take into account the
effect of a restriction on the sale of an asset when estimating the
price for the asset, an entity would adjust the quoted price to
reflect the effect of that restriction. If that quoted price is a Level 2

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input and the adjustment is an unobservable input that is

significant to the entire measurement, the measurement would be
categorised within Level 3 of the fair value hierarchy.

Level 1 inputs

76 Level 1 inputs are quoted prices (unadjusted) in active markets for

identical assets or liabilities that the entity can access at the
measurement date.

77 A quoted price in an active market provides the most reliable

evidence of fair value and shall be used without adjustment to
measure fair value whenever available, except as specified in
paragraph 79.

78 A Level 1 input will be available for many financial assets and

financial liabilities, some of which might be exchanged in multiple
active markets (eg on different exchanges). Therefore, the
emphasis within Level 1 is on determining both of the following:
(a) the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market
for the asset or liability; and
(b) whether the entity can enter into a transaction for the asset or
liability at the price in that market at the measurement date.

79 An entity shall not make an adjustment to a Level 1 input except in

the following circumstances:
(a) when an entity holds a large number of similar (but not
identical) assets or liabilities (eg debt securities) that are
measured at fair value and a quoted price in an active market is
available but not readily accessible for each of those assets or
liabilities individually (ie given the large number of similar
assets or liabilities held by the entity, it would be difficult to
obtain pricing information for each individual asset or liability
at the measurement date). In that case, as a practical expedient,
an entity may measure fair value using an alternative pricing
method that does not rely exclusively on quoted prices (eg
matrix pricing). However, the use of an alternative pricing
method results in a fair value measurement categorised within
a lower level of the fair value hierarchy.

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(b) when a quoted price in an active market does not represent

fair value at the measurement date. That might be the case if,
for example, significant events (such as transactions in a
principal-to-principal market, trades in a brokered market or
announcements) take place after the close of a market but
before the measurement date. An entity shall establish and
consistently apply a policy for identifying those events that
might affect fair value measurements. However, if the quoted
price is adjusted for new information, the adjustment results
in a fair value measurement categorised within a lower level
of the fair value hierarchy.
(c) when measuring the fair value of a liability or an entity’s
own equity instrument using the quoted price for the identical
item traded as an asset in an active market and that price
needs to be adjusted for factors specific to the item or the
asset (see paragraph 39). If no adjustment to the quoted price
of the asset is required, the result is a fair value measurement
categorised within Level 1 of the fair value hierarchy.
However, any adjustment to the quoted price of the asset
results in a fair value measurement categorised within a
lower level of the fair value hierarchy.

80 If an entity holds a position in a single asset or liability (including

a position comprising a large number of identical assets or
liabilities, such as a holding of financial instruments) and the asset
or liability is traded in an active market, the fair value of the asset
or liability shall be measured within Level 1 as the product of the
quoted price for the individual asset or liability and the quantity
held by the entity. That is the case even if a market’s normal daily
trading volume is not sufficient to absorb the quantity held and
placing orders to sell the position in a single transaction might
affect the quoted price.

Level 2 inputs

81 Level 2 inputs are inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly
or indirectly.

82 If the asset or liability has a specified (contractual) term, a Level 2

input must be observable for substantially the full term of the asset

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or liability. Level 2 inputs include the following:

(a) quoted prices for similar assets or liabilities in active
markets.
(b) quoted prices for identical or similar assets or liabilities in
markets that are not active.
(c) inputs other than quoted prices that are observable for the
asset or liability, for example:
(i) interest rates and yield curves observable at commonly
quoted intervals;
(ii) implied volatilities; and
(iii) credit spreads.
(d) market-corroborated inputs.

83 Adjustments to Level 2 inputs will vary depending on factors

specific to the asset or liability. Those factors include the
following:
(a) the condition or location of the asset;
(b) the extent to which inputs relate to items that are comparable
to the asset or liability (including those factors described in
paragraph 39); and
(c) the volume or level of activity in the markets within which
the inputs are observed.

84 An adjustment to a Level 2 input that is significant to the entire

measurement might result in a fair value measurement categorised
within Level 3 of the fair value hierarchy if the adjustment uses
significant unobservable inputs.

85 Paragraph B35 describes the use of Level 2 inputs for particular

assets and liabilities.

Level 3 inputs

86 Level 3 inputs are unobservable inputs for the asset or liability.

87 Unobservable inputs shall be used to measure fair value to the

extent that relevant observable inputs are not available, thereby

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allowing for situations in which there is little, if any, market

activity for the asset or liability at the measurement date.
However, the fair value measurement objective remains the same,
ie an exit price at the measurement date from the perspective of a
market participant that holds the asset or owes the liability.
Therefore, unobservable inputs shall reflect the assumptions that
market participants would use when pricing the asset or liability,
including assumptions about risk.

88 Assumptions about risk include the risk inherent in a particular

valuation technique used to measure fair value (such as a pricing
model) and the risk inherent in the inputs to the valuation
technique. A measurement that does not include an adjustment for
risk would not represent a fair value measurement if market
participants would include one when pricing the asset or liability.
For example, it might be necessary to include a risk adjustment
when there is significant measurement uncertainty (eg when there
has been a significant decrease in the volume or level of activity
when compared with normal market activity for the asset or
liability, or similar assets or liabilities, and the entity has
determined that the transaction price or quoted price does not
represent fair value, as described in paragraphs B37–B47).

89 An entity shall develop unobservable inputs using the best

information available in the circumstances, which might include
the entity’s own data. In developing unobservable inputs, an entity
may begin with its own data, but it shall adjust those data if
reasonably available information indicates that other market
participants would use different data or there is something
particular to the entity that is not available to other market
participants (eg an entity-specific synergy). An entity need not
undertake exhaustive efforts to obtain information about market
participant assumptions. However, an entity shall take into account
all information about market participant assumptions that is
reasonably available. Unobservable inputs developed in the
manner described above are considered market participant
assumptions and meet the objective of a fair value measurement.

90 Paragraph B36 describes the use of Level 3 inputs for particular

assets and liabilities.

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Disclosure
91 An entity shall disclose information that helps users of its
financial statements assess both of the following:
(a) for assets and liabilities that are measured at fair value
on a recurring or non-recurring basis in the statement of
financial position after initial recognition, the valuation
techniques and inputs used to develop those
measurements.
(b) for recurring fair value measurements using significant
unobservable inputs (Level 3), the effect of the
measurements on profit or loss or other comprehensive
income for the period.

92 To meet the objectives in paragraph 91, an entity shall consider all

the following:
(a) the level of detail necessary to satisfy the disclosure
requirements;
(b) how much emphasis to place on each of the various
requirements;
(c) how much aggregation or disaggregation to undertake; and
(d) whether users of financial statements need additional
information to evaluate the quantitative information
disclosed.
If the disclosures provided in accordance with this FRS and other
FRSs are insufficient to meet the objectives in paragraph 91, an
entity shall disclose additional information necessary to meet those
objectives.

93 To meet the objectives in paragraph 91, an entity shall disclose, at

a minimum, the following information for each class of assets and
liabilities (see paragraph 94 for information on determining
appropriate classes of assets and liabilities) measured at fair value
(including measurements based on fair value within the scope of
this FRS) in the statement of financial position after initial
recognition:

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(a) for recurring and non-recurring fair value measurements, the

fair value measurement at the end of the reporting period,
and for non-recurring fair value measurements, the reasons
for the measurement. Recurring fair value measurements of
assets or liabilities are those that other FRSs require or
permit in the statement of financial position at the end of
each reporting period. Non-recurring fair value
measurements of assets or liabilities are those that other
FRSs require or permit in the statement of financial position
in particular circumstances (eg when an entity measures an
asset held for sale at fair value less costs to sell in accordance
with FRS 5 Non-current Assets Held for Sale and
Discontinued Operations because the asset’s fair value less
costs to sell is lower than its carrying amount).
(b) for recurring and non-recurring fair value measurements, the
level of the fair value hierarchy within which the fair value
measurements are categorised in their entirety
(Level 1, 2 or 3).
(c) for assets and liabilities held at the end of the reporting
period that are measured at fair value on a recurring basis,
the amounts of any transfers between Level 1 and Level 2 of
the fair value hierarchy, the reasons for those transfers and
the entity’s policy for determining when transfers between
levels are deemed to have occurred (see paragraph 95).
Transfers into each level shall be disclosed and discussed
separately from transfers out of each level.
(d) for recurring and non-recurring fair value measurements
categorised within Level 2 and Level 3 of the fair value
hierarchy, a description of the valuation technique(s) and the
inputs used in the fair value measurement. If there has been a
change in valuation technique (eg changing from a market
approach to an income approach or the use of an additional
valuation technique), the entity shall disclose that change and
the reason(s) for making it. For fair value measurements
categorised within Level 3 of the fair value hierarchy, an
entity shall provide quantitative information about the
significant unobservable inputs used in the fair value
measurement. An entity is not required to create quantitative
information to comply with this disclosure requirement if
quantitative unobservable inputs are not developed by the

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entity when measuring fair value (eg when an entity uses

prices from prior transactions or third-party pricing
information without adjustment). However, when providing
this disclosure an entity cannot ignore quantitative
unobservable inputs that are significant to the fair value
measurement and are reasonably available to the entity.
(e) for recurring fair value measurements categorised within
Level 3 of the fair value hierarchy, a reconciliation from the
opening balances to the closing balances, disclosing separately
changes during the period attributable to the following:
(i) total gains or losses for the period recognised in profit
or loss, and the line item(s) in profit or loss in which
those gains or losses are recognised.
(ii) total gains or losses for the period recognised in other
comprehensive income, and the line item(s) in other
comprehensive income in which those gains or losses
are recognised.
(iii) purchases, sales, issues and settlements (each of those
types of changes disclosed separately).
(iv) the amounts of any transfers into or out of Level 3 of the
fair value hierarchy, the reasons for those transfers and
the entity’s policy for determining when transfers
between levels are deemed to have occurred (see
paragraph 95). Transfers into Level 3 shall be disclosed
and discussed separately from transfers out of Level 3.
(f) for recurring fair value measurements categorised within
Level 3 of the fair value hierarchy, the amount of the total
gains or losses for the period in (e)(i) included in profit or
loss that is attributable to the change in unrealised gains or
losses relating to those assets and liabilities held at the end of
the reporting period, and the line item(s) in profit or loss in
which those unrealised gains or losses are recognised.
(g) for recurring and non-recurring fair value measurements
categorised within Level 3 of the fair value hierarchy, a
description of the valuation processes used by the entity
(including, for example, how an entity decides its valuation
policies and procedures and analyses changes in fair value
measurements from period to period).

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(h) for recurring fair value measurements categorised within

Level 3 of the fair value hierarchy:
(i) for all such measurements, a narrative description of the
sensitivity of the fair value measurement to changes in
unobservable inputs if a change in those inputs to a
different amount might result in a significantly higher or
lower fair value measurement. If there are
interrelationships between those inputs and other
unobservable inputs used in the fair value measurement,
an entity shall also provide a description of those
interrelationships and of how they might magnify or
mitigate the effect of changes in the unobservable inputs
on the fair value measurement. To comply with that
disclosure requirement, the narrative description of the
sensitivity to changes in unobservable inputs shall
include, at a minimum, the unobservable inputs
disclosed when complying with (d).
(ii) for financial assets and financial liabilities, if changing
one or more of the unobservable inputs to reflect
reasonably possible alternative assumptions would
change fair value significantly, an entity shall state that
fact and disclose the effect of those changes. The entity
shall disclose how the effect of a change to reflect a
reasonably possible alternative assumption was
calculated. For that purpose, significance shall be judged
with respect to profit or loss, and total assets or total
liabilities, or, when changes in fair value are recognised
in other comprehensive income, total equity.
(i) for recurring and non-recurring fair value measurements, if
the highest and best use of a non-financial asset differs from
its current use, an entity shall disclose that fact and why the
non-financial asset is being used in a manner that differs
from its highest and best use.

94 An entity shall determine appropriate classes of assets and

liabilities on the basis of the following:
(a) the nature, characteristics and risks of the asset or liability;
and

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(b) the level of the fair value hierarchy within which the fair
value measurement is categorised.
The number of classes may need to be greater for fair value
measurements categorised within Level 3 of the fair value hierarchy
because those measurements have a greater degree of uncertainty
and subjectivity. Determining appropriate classes of assets and
liabilities for which disclosures about fair value measurements
should be provided requires judgement. A class of assets and
liabilities will often require greater disaggregation than the line
items presented in the statement of financial position. However, an
entity shall provide information sufficient to permit reconciliation to
the line items presented in the statement of financial position. If
another FRS specifies the class for an asset or a liability, an entity
may use that class in providing the disclosures required in this FRS
if that class meets the requirements in this paragraph.

95 An entity shall disclose and consistently follow its policy for

determining when transfers between levels of the fair value
hierarchy are deemed to have occurred in accordance with
paragraph 93(c) and (e)(iv). The policy about the timing of
recognising transfers shall be the same for transfers into the levels
as for transfers out of the levels. Examples of policies for
determining the timing of transfers include the following:
(a) the date of the event or change in circumstances that caused
the transfer.
(b) the beginning of the reporting period.
(c) the end of the reporting period.

96 If an entity makes an accounting policy decision to use the

exception in paragraph 48, it shall disclose that fact.

97 For each class of assets and liabilities not measured at fair value in
the statement of financial position but for which the fair value is
disclosed, an entity shall disclose the information required by
paragraph 93(b), (d) and (i). However, an entity is not required to
provide the quantitative disclosures about significant unobservable
inputs used in fair value measurements categorised within Level 3
of the fair value hierarchy required by paragraph 93(d). For such
assets and liabilities, an entity does not need to provide the other

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disclosures required by this FRS.

98 For a liability measured at fair value and issued with an

inseparable third-party credit enhancement, an issuer shall disclose
the existence of that credit enhancement and whether it is reflected
in the fair value measurement of the liability.

99 An entity shall present the quantitative disclosures required by this

FRS in a tabular format unless another format is more appropriate.

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Appendix A
Defined terms
This appendix is an integral part of the FRS.

active market A market in which transactions for the asset or liability

take place with sufficient frequency and volume to
provide pricing information on an ongoing basis.

cost approach A valuation technique that reflects the amount that

would be required currently to replace the service
capacity of an asset (often referred to as current
replacement cost).

entry price The price paid to acquire an asset or received to assume

a liability in an exchange transaction.

exit price The price that would be received to sell an asset or paid
to transfer a liability.

expected cash The probability-weighted average (ie mean of the

flow distribution) of possible future cash flows.

fair value The price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between
market participants at the measurement date.

highest and best The use of a non-financial asset by market participants

use that would maximise the value of the asset or the group
of assets and liabilities (eg a business) within which the
asset would be used.

income Valuation techniques that convert future amounts (eg

approach cash flows or income and expenses) to a single current
(ie discounted) amount. The fair value measurement is
determined on the basis of the value indicated by
current market expectations about those future
amounts.

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inputs The assumptions that market participants would use

when pricing the asset or liability, including
assumptions about risk, such as the following:
(a) the risk inherent in a particular valuation
technique used to measure fair value (such as a
pricing model); and
(b) the risk inherent in the inputs to the valuation
technique.
Inputs may be observable or unobservable.

Level 1 inputs Quoted prices (unadjusted) in active markets for

identical assets or liabilities that the entity can access at
the measurement date.

Level 2 inputs Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either
directly or indirectly.

Level 3 inputs Unobservable inputs for the asset or liability.

market A valuation technique that uses prices and other

approach relevant information generated by market transactions
involving identical or comparable (ie similar) assets,
liabilities or a group of assets and liabilities, such as a
business.

market- Inputs that are derived principally from or corroborated

corroborated by observable market data by correlation or other
inputs means.

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market Buyers and sellers in the principal (or most

participants advantageous) market for the asset or liability that have
all of the following characteristics:
(a) They are independent of each other, ie they are
not related parties as defined in FRS 124,
although the price in a related party transaction
may be used as an input to a fair value
measurement if the entity has evidence that the
transaction was entered into at market terms.
(b) They are knowledgeable, having a reasonable
understanding about the asset or liability and the
transaction using all available information,
including information that might be obtained
through due diligence efforts that are usual and
customary.
(c) They are able to enter into a transaction for the
asset or liability.
(d) They are willing to enter into a transaction for the
asset or liability, ie they are motivated but not
forced or otherwise compelled to do so.

most The market that maximises the amount that would be

advantageous received to sell the asset or minimises the amount that
market would be paid to transfer the liability, after taking into
account transaction costs and transport costs.

non- The risk that an entity will not fulfil an obligation.

performance Non-performance risk includes, but may not be limited
risk to, the entity’s own credit risk.

observable Inputs that are developed using market data, such as

inputs publicly available information about actual events or
transactions, and that reflect the assumptions that
market participants would use when pricing the asset or
liability.

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orderly A transaction that assumes exposure to the market for a

transaction period before the measurement date to allow for
marketing activities that are usual and customary for
transactions involving such assets or liabilities; it is not
a forced transaction (eg a forced liquidation or distress
sale).

principal The market with the greatest volume and level of

market activity for the asset or liability.

risk premium Compensation sought by risk-averse market

participants for bearing the uncertainty inherent in the
cash flows of an asset or a liability. Also referred to as
a ‘risk adjustment’.

transaction The costs to sell an asset or transfer a liability in the

costs principal (or most advantageous) market for the asset
or liability that are directly attributable to the disposal
of the asset or the transfer of the liability and meet both
of the following criteria:
(a) They result directly from and are essential to that
transaction.
(b) They would not have been incurred by the entity
had the decision to sell the asset or transfer the
liability not been made (similar to costs to sell, as
defined in FRS 5).

transport costs The costs that would be incurred to transport an asset

from its current location to its principal (or most
advantageous) market.

unit of account The level at which an asset or a liability is aggregated

or disaggregated in an FRS for recognition purposes.

unobservable Inputs for which market data are not available and that
inputs are developed using the best information available
about the assumptions that market participants would
use when pricing the asset or liability.

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Appendix B
Application guidance
This appendix is an integral part of the FRS. It describes the application of
paragraphs 1–99 and has the same authority as the other parts of the FRS.

B1 The judgements applied in different valuation situations may be

different. This appendix describes the judgements that might apply
when an entity measures fair value in different valuation situations.

The fair value measurement approach

B2 The objective of a fair value measurement is to estimate the price
at which an orderly transaction to sell the asset or to transfer the
liability would take place between market participants at the
measurement date under current market conditions. A fair value
measurement requires an entity to determine all the following:
(a) the particular asset or liability that is the subject of the
measurement (consistently with its unit of account).
(b) for a non-financial asset, the valuation premise that is
appropriate for the measurement (consistently with its
highest and best use).
(c) the principal (or most advantageous) market for the asset or
liability.
(d) the valuation technique(s) appropriate for the measurement,
considering the availability of data with which to develop
inputs that represent the assumptions that market participants
would use when pricing the asset or liability and the level of
the fair value hierarchy within which the inputs are
categorised.

Valuation premise for non-financial assets

(paragraphs 31–33)
B3 When measuring the fair value of a non-financial asset used in
combination with other assets as a group (as installed or otherwise
configured for use) or in combination with other assets and
liabilities (eg a business), the effect of the valuation premise
depends on the circumstances. For example:

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(a) the fair value of the asset might be the same whether the
asset is used on a stand-alone basis or in combination with
other assets or with other assets and liabilities. That might be
the case if the asset is a business that market participants
would continue to operate. In that case, the transaction would
involve valuing the business in its entirety. The use of the
assets as a group in an ongoing business would generate
synergies that would be available to market participants (ie
market participant synergies that, therefore, should affect the
fair value of the asset on either a stand-alone basis or in
combination with other assets or with other assets and
liabilities).
(b) an asset’s use in combination with other assets or with other
assets and liabilities might be incorporated into the fair value
measurement through adjustments to the value of the asset
used on a stand-alone basis. That might be the case if the
asset is a machine and the fair value measurement is
determined using an observed price for a similar machine
(not installed or otherwise configured for use), adjusted for
transport and installation costs so that the fair value
measurement reflects the current condition and location of
the machine (installed and configured for use).
(c) an asset’s use in combination with other assets or with other
assets and liabilities might be incorporated into the fair value
measurement through the market participant assumptions
used to measure the fair value of the asset. For example, if
the asset is work in progress inventory that is unique and
market participants would convert the inventory into finished
goods, the fair value of the inventory would assume that
market participants have acquired or would acquire any
specialised machinery necessary to convert the inventory into
finished goods.
(d) an asset’s use in combination with other assets or with other
assets and liabilities might be incorporated into the valuation
technique used to measure the fair value of the asset. That
might be the case when using the multi-period excess
earnings method to measure the fair value of an intangible
asset because that valuation technique specifically takes into
account the contribution of any complementary assets and
the associated liabilities in the group in which such an
intangible asset would be used.

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(e) in more limited situations, when an entity uses an asset

within a group of assets, the entity might measure the asset at
an amount that approximates its fair value when allocating
the fair value of the asset group to the individual assets of the
group. That might be the case if the valuation involves real
property and the fair value of improved property (ie an asset
group) is allocated to its component assets (such as land and
improvements).

Fair value at initial recognition (paragraphs 57–60)

B4 When determining whether fair value at initial recognition equals
the transaction price, an entity shall take into account factors
specific to the transaction and to the asset or liability. For example,
the transaction price might not represent the fair value of an asset
or a liability at initial recognition if any of the following
conditions exist:
(a) The transaction is between related parties, although the price
in a related party transaction may be used as an input into a
fair value measurement if the entity has evidence that the
transaction was entered into at market terms.
(b) The transaction takes place under duress or the seller is forced
to accept the price in the transaction. For example, that might
be the case if the seller is experiencing financial difficulty.
(c) The unit of account represented by the transaction price is
different from the unit of account for the asset or liability
measured at fair value. For example, that might be the case if
the asset or liability measured at fair value is only one of the
elements in the transaction (eg in a business combination),
the transaction includes unstated rights and privileges that are
measured separately in accordance with another FRS, or the
transaction price includes transaction costs.
(d) The market in which the transaction takes place is different
from the principal market (or most advantageous market).
For example, those markets might be different if the entity is
a dealer that enters into transactions with customers in the
retail market, but the principal (or most advantageous)
market for the exit transaction is with other dealers in the
dealer market.

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Valuation techniques (paragraphs 61–66)

Market approach
B5 The market approach uses prices and other relevant information
generated by market transactions involving identical or
comparable (ie similar) assets, liabilities or a group of assets and
liabilities, such as a business.

B6 For example, valuation techniques consistent with the market

approach often use market multiples derived from a set of
comparables. Multiples might be in ranges with a different
multiple for each comparable. The selection of the appropriate
multiple within the range requires judgement, considering
qualitative and quantitative factors specific to the measurement.

B7 Valuation techniques consistent with the market approach include

matrix pricing. Matrix pricing is a mathematical technique used
principally to value some types of financial instruments, such as
debt securities, without relying exclusively on quoted prices for
the specific securities, but rather relying on the securities’
relationship to other benchmark quoted securities.

Cost approach
B8 The cost approach reflects the amount that would be required
currently to replace the service capacity of an asset (often referred
to as current replacement cost).

B9 From the perspective of a market participant seller, the price that

would be received for the asset is based on the cost to a market
participant buyer to acquire or construct a substitute asset of
comparable utility, adjusted for obsolescence. That is because a
market participant buyer would not pay more for an asset than the
amount for which it could replace the service capacity of that
asset. Obsolescence encompasses physical deterioration,
functional (technological) obsolescence and economic (external)
obsolescence and is broader than depreciation for financial
reporting purposes (an allocation of historical cost) or tax purposes
(using specified service lives). In many cases the current
replacement cost method is used to measure the fair value of
tangible assets that are used in combination with other assets or
with other assets and liabilities.

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Income approach
B10 The income approach converts future amounts (eg cash flows or
income and expenses) to a single current (ie discounted) amount.
When the income approach is used, the fair value measurement
reflects current market expectations about those future amounts.

B11 Those valuation techniques include, for example, the following:

(a) present value techniques (see paragraphs B12–B30);
(b) option pricing models, such as the Black-Scholes-Merton
formula or a binomial model (ie a lattice model), that
incorporate present value techniques and reflect both the time
value and the intrinsic value of an option; and
(c) the multi-period excess earnings method, which is used to
measure the fair value of some intangible assets.

Present value techniques

B12 Paragraphs B13–B30 describe the use of present value techniques to

measure fair value. Those paragraphs focus on a discount rate
adjustment technique and an expected cash flow (expected present
value) technique. Those paragraphs neither prescribe the use of a
single specific present value technique nor limit the use of present
value techniques to measure fair value to the techniques discussed.
The present value technique used to measure fair value will depend
on facts and circumstances specific to the asset or liability being
measured (eg whether prices for comparable assets or liabilities can
be observed in the market) and the availability of sufficient data.

The components of a present value measurement

B13 Present value (ie an application of the income approach) is a tool

used to link future amounts (eg cash flows or values) to a present
amount using a discount rate. A fair value measurement of an asset
or a liability using a present value technique captures all the
following elements from the perspective of market participants at
the measurement date:
(a) an estimate of future cash flows for the asset or liability
being measured.

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(b) expectations about possible variations in the amount and

timing of the cash flows representing the uncertainty inherent
in the cash flows.
(c) the time value of money, represented by the rate on risk-free
monetary assets that have maturity dates or durations that
coincide with the period covered by the cash flows and pose
neither uncertainty in timing nor risk of default to the holder
(ie a risk-free interest rate).
(d) the price for bearing the uncertainty inherent in the cash
flows (ie a risk premium).
(e) other factors that market participants would take into account
in the circumstances.
(f) for a liability, the non-performance risk relating to that
liability, including the entity’s (ie the obligor’s) own credit
risk.

General principles

B14 Present value techniques differ in how they capture the elements in
paragraph B13. However, all the following general principles
govern the application of any present value technique used to
measure fair value:
(a) Cash flows and discount rates should reflect assumptions that
market participants would use when pricing the asset or
liability.
(b) Cash flows and discount rates should take into account only
the factors attributable to the asset or liability being
measured.
(c) To avoid double-counting or omitting the effects of risk
factors, discount rates should reflect assumptions that are
consistent with those inherent in the cash flows. For example,
a discount rate that reflects the uncertainty in expectations
about future defaults is appropriate if using contractual cash
flows of a loan (ie a discount rate adjustment technique).
That same rate should not be used if using expected (ie
probability-weighted) cash flows (ie an expected present
value technique) because the expected cash flows already
reflect assumptions about the uncertainty in future defaults;

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instead, a discount rate that is commensurate with the risk

inherent in the expected cash flows should be used.
(d) Assumptions about cash flows and discount rates should be
internally consistent. For example, nominal cash flows,
which include the effect of inflation, should be discounted at
a rate that includes the effect of inflation. The nominal risk-
free interest rate includes the effect of inflation. Real cash
flows, which exclude the effect of inflation, should be
discounted at a rate that excludes the effect of inflation.
Similarly, after-tax cash flows should be discounted using an
after-tax discount rate. Pre-tax cash flows should be
discounted at a rate consistent with those cash flows.
(e) Discount rates should be consistent with the underlying
economic factors of the currency in which the cash flows are
denominated.

Risk and uncertainty

B15 A fair value measurement using present value techniques is made

under conditions of uncertainty because the cash flows used are
estimates rather than known amounts. In many cases both the
amount and timing of the cash flows are uncertain. Even
contractually fixed amounts, such as the payments on a loan, are
uncertain if there is risk of default.

B16 Market participants generally seek compensation (ie a risk

premium) for bearing the uncertainty inherent in the cash flows of
an asset or a liability. A fair value measurement should include a
risk premium reflecting the amount that market participants would
demand as compensation for the uncertainty inherent in the cash
flows. Otherwise, the measurement would not faithfully represent
fair value. In some cases determining the appropriate risk premium
might be difficult. However, the degree of difficulty alone is not a
sufficient reason to exclude a risk premium.

B17 Present value techniques differ in how they adjust for risk and in
the type of cash flows they use. For example:
(a) The discount rate adjustment technique (see paragraphs B18–
B22) uses a risk-adjusted discount rate and contractual,
promised or most likely cash flows.

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(b) Method 1 of the expected present value technique

(see paragraph B25) uses risk-adjusted expected cash flows
and a risk-free rate.
(c) Method 2 of the expected present value technique
(see paragraph B26) uses expected cash flows that are not risk-
adjusted and a discount rate adjusted to include the risk
premium that market participants require. That rate is different
from the rate used in the discount rate adjustment technique.

Discount rate adjustment technique

B18 The discount rate adjustment technique uses a single set of cash
flows from the range of possible estimated amounts, whether
contractual or promised (as is the case for a bond) or most likely
cash flows. In all cases, those cash flows are conditional upon the
occurrence of specified events (eg contractual or promised cash
flows for a bond are conditional on the event of no default by the
debtor). The discount rate used in the discount rate adjustment
technique is derived from observed rates of return for comparable
assets or liabilities that are traded in the market. Accordingly, the
contractual, promised or most likely cash flows are discounted at
an observed or estimated market rate for such conditional cash
flows (ie a market rate of return).

B19 The discount rate adjustment technique requires an analysis of

market data for comparable assets or liabilities. Comparability is
established by considering the nature of the cash flows (eg
whether the cash flows are contractual or non-contractual and are
likely to respond similarly to changes in economic conditions), as
well as other factors (eg credit standing, collateral, duration,
restrictive covenants and liquidity). Alternatively, if a single
comparable asset or liability does not fairly reflect the risk
inherent in the cash flows of the asset or liability being measured,
it may be possible to derive a discount rate using data for several
comparable assets or liabilities in conjunction with the risk-free
yield curve (ie using a ‘build-up’ approach).

B20 To illustrate a build-up approach, assume that Asset A is a

contractual right to receive CU800* in one year (ie there is no
timing uncertainty). There is an established market for comparable

*
In this FRS monetary amounts are denominated in ‘currency units (CU)’.

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assets, and information about those assets, including price

information, is available. Of those comparable assets:
(a) Asset B is a contractual right to receive CU1,200 in one year
and has a market price of CU1,083. Thus, the implied annual
rate of return (ie a one-year market rate of return) is 10.8 per
cent [(CU1,200/CU1,083) – 1].
(b) Asset C is a contractual right to receive CU700 in two years
and has a market price of CU566. Thus, the implied annual
rate of return (ie a two-year market rate of return) is 11.2 per
cent [(CU700/CU566)0.5 – 1].
(c) All three assets are comparable with respect to risk
(ie dispersion of possible pay-offs and credit).

B21 On the basis of the timing of the contractual payments to be

received for Asset A relative to the timing for Asset B and Asset C
(ie one year for Asset B versus two years for Asset C), Asset B is
deemed more comparable to Asset A. Using the contractual
payment to be received for Asset A (CU800) and the one-year
market rate derived from Asset B (10.8 per cent), the fair value of
Asset A is CU722 (CU800/1.108). Alternatively, in the absence of
available market information for Asset B, the one-year market rate
could be derived from Asset C using the build-up approach. In that
case the two-year market rate indicated by Asset C (11.2 per cent)
would be adjusted to a one-year market rate using the term
structure of the risk-free yield curve. Additional information and
analysis might be required to determine whether the risk premiums
for one-year and two-year assets are the same. If it is determined
that the risk premiums for one-year and two-year assets are not the
same, the two-year market rate of return would be further adjusted
for that effect.

B22 When the discount rate adjustment technique is applied to fixed

receipts or payments, the adjustment for risk inherent in the cash
flows of the asset or liability being measured is included in the
discount rate. In some applications of the discount rate adjustment
technique to cash flows that are not fixed receipts or payments, an
adjustment to the cash flows may be necessary to achieve
comparability with the observed asset or liability from which the
discount rate is derived.

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Expected present value technique

B23 The expected present value technique uses as a starting point a set
of cash flows that represents the probability-weighted average of
all possible future cash flows (ie the expected cash flows). The
resulting estimate is identical to expected value, which, in
statistical terms, is the weighted average of a discrete random
variable’s possible values with the respective probabilities as the
weights. Because all possible cash flows are probability-weighted,
the resulting expected cash flow is not conditional upon the
occurrence of any specified event (unlike the cash flows used in
the discount rate adjustment technique).

B24 In making an investment decision, risk-averse market participants

would take into account the risk that the actual cash flows may
differ from the expected cash flows. Portfolio theory distinguishes
between two types of risk:
(a) unsystematic (diversifiable) risk, which is the risk specific to
a particular asset or liability.
(b) systematic (non-diversifiable) risk, which is the common risk
shared by an asset or a liability with the other items in a
diversified portfolio.
Portfolio theory holds that in a market in equilibrium, market
participants will be compensated only for bearing the systematic
risk inherent in the cash flows. (In markets that are inefficient or
out of equilibrium, other forms of return or compensation might be
available.)

B25 Method 1 of the expected present value technique adjusts the

expected cash flows of an asset for systematic (ie market) risk by
subtracting a cash risk premium (ie risk-adjusted expected cash
flows). Those risk-adjusted expected cash flows represent a
certainty-equivalent cash flow, which is discounted at a risk-free
interest rate. A certainty-equivalent cash flow refers to an expected
cash flow (as defined), adjusted for risk so that a market participant
is indifferent to trading a certain cash flow for an expected cash
flow. For example, if a market participant was willing to trade an
expected cash flow of CU1,200 for a certain cash flow of CU1,000,
the CU1,000 is the certainty equivalent of the CU1,200 (ie the
CU200 would represent the cash risk premium). In that case the
market participant would be indifferent as to the asset held.

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B26 In contrast, Method 2 of the expected present value technique

adjusts for systematic (ie market) risk by applying a risk premium
to the risk-free interest rate. Accordingly, the expected cash flows
are discounted at a rate that corresponds to an expected rate
associated with probability-weighted cash flows (ie an expected
rate of return). Models used for pricing risky assets, such as the
capital asset pricing model, can be used to estimate the expected
rate of return. Because the discount rate used in the discount rate
adjustment technique is a rate of return relating to conditional cash
flows, it is likely to be higher than the discount rate used in
Method 2 of the expected present value technique, which is an
expected rate of return relating to expected or probability-
weighted cash flows.

B27 To illustrate Methods 1 and 2, assume that an asset has expected

cash flows of CU780 in one year determined on the basis of the
possible cash flows and probabilities shown below. The applicable
risk-free interest rate for cash flows with a one-year horizon is 5
per cent, and the systematic risk premium for an asset with the
same risk profile is 3 per cent.

Possible cash flows Probability Probability-weighted

cash flows
CU500 15% CU75
CU800 60% CU480
CU900 25% CU225
Expected cash flows CU780

B28 In this simple illustration, the expected cash flows (CU780)

represent the probability-weighted average of the three possible
outcomes. In more realistic situations, there could be many
possible outcomes. However, to apply the expected present value
technique, it is not always necessary to take into account
distributions of all possible cash flows using complex models and
techniques. Rather, it might be possible to develop a limited
number of discrete scenarios and probabilities that capture the
array of possible cash flows. For example, an entity might use
realised cash flows for some relevant past period, adjusted for
changes in circumstances occurring subsequently (eg changes in
external factors, including economic or market conditions,
industry trends and competition as well as changes in internal

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factors affecting the entity more specifically), taking into account

the assumptions of market participants.

B29 In theory, the present value (ie the fair value) of the asset’s cash
flows is the same whether determined using Method 1 or
Method 2, as follows:
(a) Using Method 1, the expected cash flows are adjusted for
systematic (ie market) risk. In the absence of market data
directly indicating the amount of the risk adjustment, such
adjustment could be derived from an asset pricing model using
the concept of certainty equivalents. For example, the risk
adjustment (ie the cash risk premium of CU22) could be
determined using the systematic risk premium of 3 per cent
(CU780 – [CU780 × (1.05/1.08)]), which results in risk-
adjusted expected cash flows of CU758 (CU780 – CU22). The
CU758 is the certainty equivalent of CU780 and is discounted
at the risk-free interest rate (5 per cent). The present value (ie
the fair value) of the asset is CU722 (CU758/1.05).
(b) Using Method 2, the expected cash flows are not adjusted for
systematic (ie market) risk. Rather, the adjustment for that
risk is included in the discount rate. Thus, the expected cash
flows are discounted at an expected rate of return of 8 per
cent (ie the 5 per cent risk-free interest rate plus the 3 per
cent systematic risk premium). The present value (ie the fair
value) of the asset is CU722 (CU780/1.08).

B30 When using an expected present value technique to measure fair

value, either Method 1 or Method 2 could be used. The selection
of Method 1 or Method 2 will depend on facts and circumstances
specific to the asset or liability being measured, the extent to
which sufficient data are available and the judgements applied.

Applying present value techniques to liabilities and an

entity’s own equity instruments not held by other parties
as assets (paragraphs 40 and 41)
B31 When using a present value technique to measure the fair value of
a liability that is not held by another party as an asset (eg a
decommissioning liability), an entity shall, among other things,
estimate the future cash outflows that market participants would

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expect to incur in fulfilling the obligation. Those future cash

outflows shall include market participants’ expectations about the
costs of fulfilling the obligation and the compensation that a
market participant would require for taking on the obligation. Such
compensation includes the return that a market participant would
require for the following:
(a) undertaking the activity (ie the value of fulfilling the
obligation; eg by using resources that could be used for other
activities); and
(b) assuming the risk associated with the obligation (ie a risk
premium that reflects the risk that the actual cash outflows
might differ from the expected cash outflows; see paragraph
B33).

B32 For example, a non-financial liability does not contain a

contractual rate of return and there is no observable market yield
for that liability. In some cases the components of the return that
market participants would require will be indistinguishable from
one another (eg when using the price a third party contractor
would charge on a fixed fee basis). In other cases an entity needs
to estimate those components separately (eg when using the price
a third party contractor would charge on a cost plus basis because
the contractor in that case would not bear the risk of future
changes in costs).

B33 An entity can include a risk premium in the fair value

measurement of a liability or an entity’s own equity instrument
that is not held by another party as an asset in one of the following
ways:
(a) by adjusting the cash flows (ie as an increase in the amount
of cash outflows); or
(b) by adjusting the rate used to discount the future cash flows to
their present values (ie as a reduction in the discount rate).
An entity shall ensure that it does not double-count or omit
adjustments for risk. For example, if the estimated cash flows are
increased to take into account the compensation for assuming the
risk associated with the obligation, the discount rate should not be
adjusted to reflect that risk.

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Inputs to valuation techniques (paragraphs 67–71)

B34 Examples of markets in which inputs might be observable for
some assets and liabilities (eg financial instruments) include the
following:
(a) Exchange markets. In an exchange market, closing prices are
both readily available and generally representative of fair
value. An example of such a market is the London Stock
Exchange.
(b) Dealer markets. In a dealer market, dealers stand ready to
trade (either buy or sell for their own account), thereby
providing liquidity by using their capital to hold an inventory
of the items for which they make a market. Typically bid and
ask prices (representing the price at which the dealer is
willing to buy and the price at which the dealer is willing to
sell, respectively) are more readily available than closing
prices. Over-the-counter markets (for which prices are
publicly reported) are dealer markets. Dealer markets also
exist for some other assets and liabilities, including some
financial instruments, commodities and physical assets
(eg used equipment).
(c) Brokered markets. In a brokered market, brokers attempt to
match buyers with sellers but do not stand ready to trade for
their own account. In other words, brokers do not use their
own capital to hold an inventory of the items for which they
make a market. The broker knows the prices bid and asked
by the respective parties, but each party is typically unaware
of another party’s price requirements. Prices of completed
transactions are sometimes available. Brokered markets
include electronic communication networks, in which buy
and sell orders are matched, and commercial and residential
real estate markets.
(d) Principal-to-principal markets. In a principal-to-principal
market, transactions, both originations and resales, are
negotiated independently with no intermediary. Little
information about those transactions may be made available
publicly.

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Fair value hierarchy (paragraphs 72–90)

Level 2 inputs (paragraphs 81–85)

B35 Examples of Level 2 inputs for particular assets and liabilities
include the following:
(a) Receive-fixed, pay-variable interest rate swap based on the
London Interbank Offered Rate (LIBOR) swap rate. A Level
2 input would be the LIBOR swap rate if that rate is
observable at commonly quoted intervals for substantially the
full term of the swap.
(b) Receive-fixed, pay-variable interest rate swap based on a yield
curve denominated in a foreign currency. A Level 2 input
would be the swap rate based on a yield curve denominated in
a foreign currency that is observable at commonly quoted
intervals for substantially the full term of the swap. That would
be the case if the term of the swap is 10 years and that rate is
observable at commonly quoted intervals for 9 years, provided
that any reasonable extrapolation of the yield curve for year 10
would not be significant to the fair value measurement of the
swap in its entirety.
(c) Receive-fixed, pay-variable interest rate swap based on a
specific bank’s prime rate. A Level 2 input would be the
bank’s prime rate derived through extrapolation if the
extrapolated values are corroborated by observable market
data, for example, by correlation with an interest rate that is
observable over substantially the full term of the swap.
(d) Three-year option on exchange-traded shares. A Level 2
input would be the implied volatility for the shares derived
through extrapolation to year 3 if both of the following
conditions exist:
(i) Prices for one-year and two-year options on the shares
are observable.
(ii) The extrapolated implied volatility of a three-year
option is corroborated by observable market data for
substantially the full term of the option.
In that case the implied volatility could be derived by
extrapolating from the implied volatility of the one-year and

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two-year options on the shares and corroborated by the

implied volatility for three-year options on comparable
entities’ shares, provided that correlation with the one-year
and two-year implied volatilities is established.
(e) Licensing arrangement. For a licensing arrangement that is
acquired in a business combination and was recently
negotiated with an unrelated party by the acquired entity (the
party to the licensing arrangement), a Level 2 input would be
the royalty rate in the contract with the unrelated party at
inception of the arrangement.
(f) Finished goods inventory at a retail outlet. For finished
goods inventory that is acquired in a business combination, a
Level 2 input would be either a price to customers in a retail
market or a price to retailers in a wholesale market, adjusted
for differences between the condition and location of the
inventory item and the comparable (ie similar) inventory
items so that the fair value measurement reflects the price
that would be received in a transaction to sell the inventory to
another retailer that would complete the requisite selling
efforts. Conceptually, the fair value measurement will be the
same, whether adjustments are made to a retail price
(downward) or to a wholesale price (upward). Generally, the
price that requires the least amount of subjective adjustments
should be used for the fair value measurement.
(g) Building held and used. A Level 2 input would be the price
per square metre for the building (a valuation multiple)
derived from observable market data, eg multiples derived
from prices in observed transactions involving comparable
(ie similar) buildings in similar locations.
(h) Cash-generating unit. A Level 2 input would be a valuation
multiple (eg a multiple of earnings or revenue or a similar
performance measure) derived from observable market data,
eg multiples derived from prices in observed transactions
involving comparable (ie similar) businesses, taking into
account operational, market, financial and non-financial
factors.

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Level 3 inputs (paragraphs 86–90)

B36 Examples of Level 3 inputs for particular assets and liabilities
include the following:
(a) Long-dated currency swap. A Level 3 input would be an
interest rate in a specified currency that is not observable and
cannot be corroborated by observable market data at
commonly quoted intervals or otherwise for substantially the
full term of the currency swap. The interest rates in a
currency swap are the swap rates calculated from the
respective countries’ yield curves.
(b) Three-year option on exchange-traded shares. A Level 3
input would be historical volatility, ie the volatility for the
shares derived from the shares’ historical prices. Historical
volatility typically does not represent current market
participants’ expectations about future volatility, even if it is
the only information available to price an option.
(c) Interest rate swap. A Level 3 input would be an adjustment
to a mid-market consensus (non-binding) price for the swap
developed using data that are not directly observable and
cannot otherwise be corroborated by observable market data.
(d) Decommissioning liability assumed in a business combination.
A Level 3 input would be a current estimate using the entity’s
own data about the future cash outflows to be paid to fulfil the
obligation (including market participants’ expectations about
the costs of fulfilling the obligation and the compensation that
a market participant would require for taking on the obligation
to dismantle the asset) if there is no reasonably available
information that indicates that market participants would use
different assumptions. That Level 3 input would be used in a
present value technique together with other inputs, eg a current
risk-free interest rate or a credit-adjusted risk-free rate if the
effect of the entity’s credit standing on the fair value of the
liability is reflected in the discount rate rather than in the
estimate of future cash outflows.
(e) Cash-generating unit. A Level 3 input would be a financial
forecast (eg of cash flows or profit or loss) developed using
the entity’s own data if there is no reasonably available
information that indicates that market participants would use
different assumptions.

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Measuring fair value when the volume or level of activity

for an asset or a liability has significantly decreased
B37 The fair value of an asset or a liability might be affected when
there has been a significant decrease in the volume or level of
activity for that asset or liability in relation to normal market
activity for the asset or liability (or similar assets or liabilities). To
determine whether, on the basis of the evidence available, there
has been a significant decrease in the volume or level of activity
for the asset or liability, an entity shall evaluate the significance
and relevance of factors such as the following:
(a) There are few recent transactions.
(b) Price quotations are not developed using current information.
(c) Price quotations vary substantially either over time or among
market-makers (eg some brokered markets).
(d) Indices that previously were highly correlated with the fair
values of the asset or liability are demonstrably uncorrelated
with recent indications of fair value for that asset or liability.
(e) There is a significant increase in implied liquidity risk
premiums, yields or performance indicators (such as
delinquency rates or loss severities) for observed transactions
or quoted prices when compared with the entity’s estimate of
expected cash flows, taking into account all available market
data about credit and other non-performance risk for the asset
or liability.
(f) There is a wide bid-ask spread or significant increase in the
bid-ask spread.
(g) There is a significant decline in the activity of, or there is an
absence of, a market for new issues (ie a primary market) for
the asset or liability or similar assets or liabilities.
(h) Little information is publicly available (eg for transactions
that take place in a principal-to-principal market).

B38 If an entity concludes that there has been a significant decrease in

the volume or level of activity for the asset or liability in relation
to normal market activity for the asset or liability (or similar assets
or liabilities), further analysis of the transactions or quoted prices

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is needed. A decrease in the volume or level of activity on its own

may not indicate that a transaction price or quoted price does not
represent fair value or that a transaction in that market is not
orderly. However, if an entity determines that a transaction or
quoted price does not represent fair value (eg there may be
transactions that are not orderly), an adjustment to the transactions
or quoted prices will be necessary if the entity uses those prices as
a basis for measuring fair value and that adjustment may be
significant to the fair value measurement in its entirety.
Adjustments also may be necessary in other circumstances (eg
when a price for a similar asset requires significant adjustment to
make it comparable to the asset being measured or when the price
is stale).

B39 This FRS does not prescribe a methodology for making significant
adjustments to transactions or quoted prices. See paragraphs 61–66
and B5–B11 for a discussion of the use of valuation techniques
when measuring fair value. Regardless of the valuation technique
used, an entity shall include appropriate risk adjustments,
including a risk premium reflecting the amount that market
participants would demand as compensation for the uncertainty
inherent in the cash flows of an asset or a liability (see paragraph
B17). Otherwise, the measurement does not faithfully represent
fair value. In some cases determining the appropriate risk
adjustment might be difficult. However, the degree of difficulty
alone is not a sufficient basis on which to exclude a risk
adjustment. The risk adjustment shall be reflective of an orderly
transaction between market participants at the measurement date
under current market conditions.

B40 If there has been a significant decrease in the volume or level of

activity for the asset or liability, a change in valuation technique or
the use of multiple valuation techniques may be appropriate (eg
the use of a market approach and a present value technique). When
weighting indications of fair value resulting from the use of
multiple valuation techniques, an entity shall consider the
reasonableness of the range of fair value measurements. The
objective is to determine the point within the range that is most
representative of fair value under current market conditions. A
wide range of fair value measurements may be an indication that
further analysis is needed.

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B41 Even when there has been a significant decrease in the volume or
level of activity for the asset or liability, the objective of a fair
value measurement remains the same. Fair value is the price that
would be received to sell an asset or paid to transfer a liability in
an orderly transaction (ie not a forced liquidation or distress sale)
between market participants at the measurement date under current
market conditions.

B42 Estimating the price at which market participants would be willing

to enter into a transaction at the measurement date under current
market conditions if there has been a significant decrease in the
volume or level of activity for the asset or liability depends on the
facts and circumstances at the measurement date and requires
judgement. An entity’s intention to hold the asset or to settle or
otherwise fulfil the liability is not relevant when measuring fair
value because fair value is a market-based measurement, not an
entity-specific measurement.

Identifying transactions that are not orderly

B43 The determination of whether a transaction is orderly (or is not

orderly) is more difficult if there has been a significant decrease in
the volume or level of activity for the asset or liability in relation
to normal market activity for the asset or liability (or similar assets
or liabilities). In such circumstances it is not appropriate to
conclude that all transactions in that market are not orderly (ie
forced liquidations or distress sales). Circumstances that may
indicate that a transaction is not orderly include the following:
(a) There was not adequate exposure to the market for a period
before the measurement date to allow for marketing activities
that are usual and customary for transactions involving such
assets or liabilities under current market conditions.
(b) There was a usual and customary marketing period, but the
seller marketed the asset or liability to a single market
participant.
(c) The seller is in or near bankruptcy or receivership (ie the
seller is distressed).
(d) The seller was required to sell to meet regulatory or legal
requirements (ie the seller was forced).

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(e) The transaction price is an outlier when compared with other

recent transactions for the same or a similar asset or liability.
An entity shall evaluate the circumstances to determine whether,
on the weight of the evidence available, the transaction is orderly.

B44 An entity shall consider all the following when measuring fair
value or estimating market risk premiums:
(a) If the evidence indicates that a transaction is not orderly, an
entity shall place little, if any, weight (compared with other
indications of fair value) on that transaction price.
(b) If the evidence indicates that a transaction is orderly, an
entity shall take into account that transaction price. The
amount of weight placed on that transaction price when
compared with other indications of fair value will depend on
the facts and circumstances, such as the following:
(i) the volume of the transaction.
(ii) the comparability of the transaction to the asset or
liability being measured.
(iii) the proximity of the transaction to the measurement
date.
(c) If an entity does not have sufficient information to conclude
whether a transaction is orderly, it shall take into account the
transaction price. However, that transaction price may not
represent fair value (ie the transaction price is not necessarily
the sole or primary basis for measuring fair value or
estimating market risk premiums). When an entity does not
have sufficient information to conclude whether particular
transactions are orderly, the entity shall place less weight on
those transactions when compared with other transactions
that are known to be orderly.
An entity need not undertake exhaustive efforts to determine
whether a transaction is orderly, but it shall not ignore information
that is reasonably available. When an entity is a party to a
transaction, it is presumed to have sufficient information to
conclude whether the transaction is orderly.

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Using quoted prices provided by third parties

B45 This FRS does not preclude the use of quoted prices provided by
third parties, such as pricing services or brokers, if an entity has
determined that the quoted prices provided by those parties are
developed in accordance with this FRS.

B46 If there has been a significant decrease in the volume or level of

activity for the asset or liability, an entity shall evaluate whether
the quoted prices provided by third parties are developed using
current information that reflects orderly transactions or a valuation
technique that reflects market participant assumptions (including
assumptions about risk). In weighting a quoted price as an input to
a fair value measurement, an entity places less weight (when
compared with other indications of fair value that reflect the
results of transactions) on quotes that do not reflect the result of
transactions.

B47 Furthermore, the nature of a quote (eg whether the quote is an

indicative price or a binding offer) shall be taken into account
when weighting the available evidence, with more weight given to
quotes provided by third parties that represent binding offers.

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Appendix C
Effective date and transition
This appendix is an integral part of the FRS and has the same authority as
the other parts of the FRS.

C1 An entity shall apply this FRS for annual periods beginning on or

after 1 January 2013. Earlier application is permitted. If an entity
applies this FRS for an earlier period, it shall disclose that fact.

C2 This FRS shall be applied prospectively as of the beginning of the

annual period in which it is initially applied.

C3 The disclosure requirements of this FRS need not be applied in

comparative information provided for periods before initial
application of this FRS.

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Amendments to other FRSs

This Addendum sets out amendments to other FRSs that are a consequence
of the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

Change in definition
(1) In FRSs 1, 3–5 and 9 (IFRS 9 issued by IASB in October 2010)
the definition of fair value is replaced with:

Fair value is the price that would be received to sell an asset

or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. (See FRS 13.)

In FRSs 102, 116, 118–121, 132 and 140 the definition of fair
value is replaced with:

Fair value is the price that would be received to sell an asset

or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. (See FRS 13
Fair Value Measurement.)

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Consequential Amendments to FRS 1

First-time Adoption of Financial Reporting Standards
This Addendum sets out amendments to FRS 1 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.
FRS 1 is amended as described below.
(1) Paragraph 19 is deleted.
(2) Paragraph 39J is added as follows:
39J FRS 13 Fair Value Measurement, issued in November
2011, deleted paragraph 19, amended the definition of fair
value in Appendix A and amended paragraphs D15 and
D20. An entity shall apply those amendments when it
applies FRS 13.

(3) Paragraphs D15 and D20 are amended as follows:

D15 If a first-time adopter measures such an investment at
cost in accordance with FRS 127, it shall measure that
investment at one of the following amounts in its separate
opening FRS statement of financial position:
…
(b) deemed cost. The deemed cost of such an
investment shall be its:
(i) fair value (determined in accordance with
FRS 139) at the entity’s date of transition to
FRSs in its separate financial statements; or
…
D20 Notwithstanding the requirements of paragraphs 7 and
9, an entity may apply the requirements in the last
sentence paragraph AG76(a) of FRS 139 paragraph
AG76 and in paragraph AG76A, in either of the
following ways:
…

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Consequential Amendments to FRS 2

Share-based Payment
This Addendum sets out amendments to FRS 2 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 2 is amended as described below.

Paragraph 6A is added as follows:

6A This FRS uses the term ‘fair value’ in a way that differs in some
respects from the definition of fair value in FRS 13 Fair Value
Measurement. Therefore, when applying FRS 2 an entity measures
fair value in accordance with this FRS, not FRS 13.

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Consequential Amendments to FRS 3

Business Combinations
This Addendum sets out amendments to FRS 3 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 3 is amended as described below.

(1) Paragraphs 20, 29, 33 and 47 are amended as follows:

20 Paragraphs B41–B45 provide guidance on measuring the

fair value of particular identifiable assets and a non-
controlling interest in an acquiree. Paragraphs 24–31
specify the types of identifiable assets and liabilities that
include items for which this FRS provides limited
exceptions to the measurement principle.

29 The acquirer shall measure the value of a reacquired right

recognised as an intangible asset on the basis of the
remaining contractual term of the related contract
regardless of whether market participants would consider
potential contractual renewals in determining when
measuring its fair value. Paragraphs B35 and B36 provide
related application guidance.

33 … To determine the amount of goodwill in a business

combination in which no consideration is transferred, the
acquirer shall use the acquisition-date fair value of the
acquirer’s interest in the acquiree determined using a
valuation technique in place of the acquisition-date fair
value of the consideration transferred (paragraph
32(a)(i)). …

47 … For example, unless an intervening event that changed

its fair value can be identified, the sale of an asset to a
third party shortly after the acquisition date for an amount
that differs significantly from its provisional fair value

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determined measured at that date is likely to indicate an

error in the provisional amount.

(2) Paragraph 64F is added as follows:

64F FRS 13 Fair Value Measurement, issued in November

2011, amended the definition of fair value in Appendix A
and amended paragraphs B22, B40, B43–B46, B49 and
B64. An entity shall apply those amendments when it
applies FRS 13.

(3) In Appendix B paragraphs B22 and B40, B43–B46, B49 and B64
are amended as follows:

B22 Because the consolidated financial statements represent

the continuation of the financial statements of the legal
subsidiary except for its capital structure, the
consolidated financial statements reflect:
…
(d) the amount recognised as issued equity interests in
the consolidated financial statements determined by
adding the issued equity interest of the legal
subsidiary (the accounting acquirer) outstanding
immediately before the business combination to the
fair value of the legal parent (accounting acquiree)
determined in accordance with this FRS. However,
…
…

B40 The identifiability criteria determine whether an

intangible asset is recognised separately from goodwill.
However, the criteria neither provide guidance for
measuring the fair value of an intangible asset nor restrict
the assumptions used in estimating measuring the fair
value of an intangible asset. For example, the acquirer
would take into account the assumptions that market
participants would consider use when pricing the
intangible asset, such as expectations of future contract
renewals, in measuring fair value. …

B43 For To protect its competitive position, or for other

reasons, the acquirer may intend not to use an acquired

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non-financial asset actively, for example, a research and

development intangible asset, or it may not intend to use
the asset in a way that is different from the way in which
other market participants would use it according to its
highest and best use. For example, that might be the case
for an acquired research and development intangible asset
that the acquirer plans to use defensively by preventing
others from using it. Nevertheless, the acquirer shall
measure the fair value of the non-financial asset at fair
value determined in accordance with assuming its highest
and best use by other market participants in accordance
with the appropriate valuation premise, both initially and
when measuring fair value less costs of disposal for
subsequent impairment testing.

B44 This FRS allows the acquirer to measure a non-

controlling interest in the acquiree at its fair value at the
acquisition date. Sometimes an acquirer will be able to
measure the acquisition-date fair value of a non-
controlling interest on the basis of a quoted price in an
active market prices for the equity shares (ie those not
held by the acquirer). In other situations, however, a
quoted price in an active market price for the equity
shares will not be available. In those situations, the
acquirer would measure the fair value of the non-
controlling interest using another valuation techniques.

B45 The fair values of the acquirer’s interest in the acquiree

and the non-controlling interest on a per-share basis
might differ. The main difference is likely to be the
inclusion of a control premium in the per-share fair value
of the acquirer’s interest in the acquiree or, conversely,
the inclusion of a discount for lack of control (also
referred to as a minority non-controlling interest
discount) in the per-share fair value of the non-
controlling interest if market participants would take into
account such a premium or discount when pricing the
non-controlling interest.

B46 In a business combination achieved without the transfer

of consideration, the acquirer must substitute the
acquisition-date fair value of its interest in the acquiree

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for the acquisition-date fair value of the consideration

transferred to measure goodwill or a gain on a bargain
purchase (see paragraphs 32–34). The acquirer should
measure the acquisition-date fair value of its interest in
the acquiree using one or more valuation techniques that
are appropriate in the circumstances and for which
sufficient data are available. If more than one valuation
technique is used, the acquirer should evaluate the results
of the techniques, considering the relevance and
reliability of the inputs used and the extent of the
available data.

B49 A fair value measurement of a mutual entity should

include the assumptions that market participants would
make about future member benefits as well as any other
relevant assumptions market participants would make
about the mutual entity. For example, an estimated cash
flow model a present value technique may be used to
determine measure the fair value of a mutual entity. The
cash flows used as inputs to the model should be based on
the expected cash flows of the mutual entity, which are
likely to reflect reductions for member benefits, such as
reduced fees charged for goods and services.

B64 To meet the objective in paragraph 59, the acquirer shall

disclose the following information for each business
combination that occurs during the reporting period:
…
(f) the acquisition-date fair value of the total
consideration transferred and the acquisition-date
fair value of each major class of consideration, such
as:
…
(iv) equity interests of the acquirer, including the
number of instruments or interests issued or
issuable and the method of determining
measuring the fair value of those instruments
or interests.
…

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(o) for each business combination in which the acquirer

holds less than 100 per cent of the equity interests in
the acquiree at the acquisition date:
…
(ii) for each non-controlling interest in an
acquiree measured at fair value, the valuation
technique(s) and key model significant inputs
used for determining to measure that value.
…

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Consequential Amendments to FRS 4

Insurance Contracts
This Addendum sets out amendments to FRS 4 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 4 is amended as described below.

Paragraph 41E is added as follows:

41E FRS 13 Fair Value Measurement, issued in November 2011,

amended the definition of fair value in Appendix A. An entity
shall apply that amendment when it applies FRS 13.

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Consequential Amendments to FRS 5

Non-current Assets Held for Sale and Discontinued
Operations
This Addendum sets out amendments to FRS 5 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 5 is amended as described below.

Paragraph 44H is added as follows:

44H FRS 13 Fair Value Measurement, issued in November 2011,

amended the definition of fair value in Appendix A. An entity
shall apply that amendment when it applies FRS 13.

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Consequential Amendments to FRS 7

Financial Instruments: Disclosures
This Addendum sets out amendments to FRS 7 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 7 is amended as described below.

(1) Paragraph IN5C is added as follows:

IN5C In November 2011 the MASB relocated the disclosures

about fair value measurements to FRS 13 Fair Value
Measurement.

(2) Paragraph 3 is amended as follows:

3 This FRS shall be applied by all entities to all types of

financial instruments, except:
(a) ... in those cases, entities shall apply the
requirements of this FRS and, for those interests
measured at fair value, the requirements of FRS 13
Fair Value Measurement. ...
…

(3) Paragraphs 27–27B are deleted.

(4) Paragraph 28 is amended as follows:

28 If the market for a financial instrument is not active, an

entity establishes its fair value using a valuation
technique (see paragraphs AG74–AG79 of FRS 139).
Nevertheless, the best evidence of fair value at initial
recognition is the transaction price (ie the fair value of the
consideration given or received), unless conditions
described in paragraph AG76 of FRS 139 are met. It
follows that there could be a difference between the fair
value at initial recognition and the amount that would be
determined at that date using the valuation technique. If

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such a difference exists, an entity shall disclose, by class

of financial instrument: In some cases, an entity does not
recognise a gain or loss on initial recognition of a
financial asset or financial liability because the fair value
is neither evidenced by a quoted price in an active market
for an identical asset or liability (ie a Level 1 input) nor
based on a valuation technique that uses only data from
observable markets (see paragraph AG76 of FRS 139). In
such cases, the entity shall disclose by class of financial
asset or financial liability:
(a) its accounting policy for recognising in profit or loss
the that difference between the fair value at initial
recognition and the transaction price in profit or loss
to reflect a change in factors (including time) that
market participants would consider in setting a price
take into account when pricing the asset or liability
(see paragraph AG76A AG76(b) of FRS 139). ; and
…
(c) why the entity concluded that the transaction price
was not the best evidence of fair value, including a
description of the evidence that supports the fair
value.

(5) Paragraph 29 is amended as follows:

29 Disclosures of fair value are not required:

…
(b) for an investment in equity instruments that do not
have a quoted market price in an active market for
an identical instrument (ie a Level 1 input), or
derivatives linked to such equity instruments, that is
measured at cost in accordance with FRS 139
because its fair value cannot otherwise be measured
reliably; or
…

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(6) Paragraph 44P is added as follows:

44P FRS 13, issued in November 2011, amended paragraphs 3,

28, 29, B4 and B26 and Appendix A and deleted
paragraphs 27–27B. An entity shall apply those
amendments when it applies FRS 13.

(7) In Appendix A the definition of other price risk is amended as

follows:

other price The risk that the fair value or future cash flows of a
risk financial instrument will fluctuate because of
changes in market prices (other than those arising
from interest rate risk or currency risk), whether
those changes are caused by factors specific to the
individual financial instrument or its issuer, or by
factors affecting all similar financial instruments
traded in the market.

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Consequential Amendments to FRS 9

Financial Instruments (IFRS 9 Financial Instruments issued
by IASB in November 2009)
This Addendum sets out amendments to FRS 9 (IFRS 9 issued by IASB in
November 2009) that are a consequence of the issuance of FRS 13. An
entity shall apply the amendments for annual periods beginning on or after
1 January 2013. If an entity applies FRS 13 for an earlier period, it shall
apply the amendments for that earlier period. Amended paragraphs are
shown with new text underlined and deleted text struck through.

FRS 9 (IFRS 9 issued by IASB in November 2009) is amended as

described below.

(1) Paragraph 5.1.1 is amended as follows:

5.1.1 At initial recognition, an entity shall measure a

financial asset at its fair value (see paragraphs 48, 48A
and AG69–AG82 of FRS 139) plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs that are directly attributable to the
acquisition of the financial asset.

(2) Paragraph 5.1.1A is added as follows:

5.1.1A However, if the fair value of the financial asset at

initial recognition differs from the transaction price,
an entity shall apply paragraph B5.1 and paragraph
AG76 of FRS 139.

(3) Paragraphs 5.2.1, 5.3.2, 8.2.5 and 8.2.11 are amended as follows:

5.2.1 After initial recognition, an entity shall measure a

financial asset in accordance with paragraphs 4.1–4.5
at fair value (see paragraphs 48, 48A and AG69–
AG82 of FRS 139) or amortised cost.

5.3.2 If, in accordance with paragraph 4.9, an entity

reclassifies a financial asset so that it is measured at
fair value, its fair value is determined measured at the
reclassification date. Any gain or loss arising from a

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difference between the previous carrying amount and

fair value is recognised in profit or loss.

8.2.5 If an entity measures a hybrid contract at fair value in

accordance with paragraph 4.4 or paragraph 4.5 but the fair
value of the hybrid contract had not been determined
measured in comparative reporting periods, the fair value
of the hybrid contract in the comparative reporting periods
shall be the sum of the fair values of the components (ie
the non-derivative host and the embedded derivative) at the
end of each comparative reporting period.

8.2.11 If an entity previously accounted for an investment in an

unquoted equity instrument that does not have a quoted
price in an active market for an identical instrument (ie a
Level 1 input) (or a derivative that is linked to and must be
settled by delivery of such an unquoted equity instrument)
at cost in accordance with FRS 139, it shall measure that
instrument at fair value at the date of initial application. ...

(4) Paragraph 8.1.3 is added as follows:

8.1.3 FRS 13 Fair Value Measurement, issued in November

2011, amended paragraphs 5.1.1, 5.2.1, 5.3.2, 8.2.5,
8.2.11, B5.1, B5.4, B5.5, B5.7, C8, C20, C22, C27 and
C28 and added paragraph 5.1.1A. An entity shall apply
those amendments when it applies FRS 13.

(5) In Appendix A the introductory text is amended as follows:

The following terms are defined in paragraph 11 of

FRS 132 Financial Instruments: Presentation, or
paragraph 9 of FRS 139 or Appendix A of FRS 13 and
are used in this FRS with the meanings specified in FRS
132, or FRS 139 or FRS 13: ...

(6) In Appendix B paragraph B5.1, the heading above paragraph B5.5

and paragraphs B5.5 and B5.7 are amended as follows:

B5.1 The fair value of a financial asset at initial recognition is

normally the transaction price (ie the fair value of the
consideration given, see also FRS 13 and paragraph
AG76 of FRS 139). However, if part of the consideration

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given is for something other than the financial instrument,

an entity shall measure the fair value of the financial
instrument is estimated using a valuation technique (see
paragraphs AG74–AG79 of FRS 139). For example, the
fair value of a long-term loan or receivable that carries no
interest can be estimated measured as the present value of
all future cash receipts discounted using the prevailing
market rate(s) of interest for a similar instrument (similar
as to currency, term, type of interest rate and other
factors) with a similar credit rating. Any additional
amount lent is an expense or a reduction of income unless
it qualifies for recognition as some other type of asset.

Investments in unquoted equity instruments (and

contracts on those investments that must be settled by
delivery of the unquoted equity instruments)

B5.5 ... That may be the case if insufficient more recent

information is available to determine measure fair value,
or if there is a wide range of possible fair value
measurements and cost represents the best estimate of fair
value within that range.

B5.7 ... In such cases, the entity must estimate measure fair
value.

(7) In Consequential Amendments to FRS 7 Financial Instruments:

Disclosures contained in FRS 9 (IFRS 9 issued by IASB in
November 2009), the amendments to paragraph 29 of FRS 7 are
further amended as follows:
29 Disclosures of fair value are not required:
...
(b) for derivatives linked to investments in equity
instruments that do not have a quoted market price
in an active market for an identical instrument (ie a
Level 1 input) that are measured at cost in
accordance with FRS 139 because their fair value
cannot otherwise be measured reliably; or
…

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(8) In Consequential Amendments to FRS 128 Investments in

Associates contained in FRS 9 (IFRS 9 issued by IASB in
November 2009), the amendments to paragraph 1 of FRS 128 are
further amended as follows:

1 This Standard shall be applied in accounting for

investments in associates. However, it does not apply
to investments in associates held by:
(a) venture capital organisations, or
(b) mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that are measured at fair value through profit or loss
in accordance with FRS 9 Financial Instruments and
FRS 139 Financial Instruments: Recognition and
Measurement. An entity shall measure such
investments at fair value through profit or loss in
accordance with FRS 9. An entity holding such an
investment shall make the disclosures required by
paragraph 37(f).

(9) In Consequential Amendments to FRS 131 Interests in Joint

Ventures contained in FRS 9 (IFRS 9 issued by IASB in
November 2009), the amendments to paragraph 1 of FRS 131 are
further amended as follows:

1 This Standard shall be applied in accounting for

interests in joint ventures and the reporting of joint
venture assets, liabilities, income and expenses in the
financial statements of venturers and investors,
regardless of the structures or forms under which the
joint venture activities take place. However, it does
not apply to venturers’ interests in jointly controlled
entities held by:
(a) venture capital organisations, or
(b) mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that are measured at fair value through profit or loss
in accordance with FRS 9 Financial Instruments and
FRS 139 Financial Instruments: Recognition and

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Measurement. An entity shall measure such

investments at fair value through profit or loss in
accordance with FRS 9. A venturer holding such an
interest shall make the disclosures required by
paragraphs 55 and 56.

(10) In Consequential Amendments to FRS 139 Financial Instruments:

Recognition and Measurement contained in FRS 9 (IFRS 9 issued
by IASB in November 2009), the amendments to paragraphs 9, 13,
88, AG64, AG80, AG81 and AG96 of FRS 139 are further
amended as follows:

9 ...
It should be noted that FRS 13 Fair Value
Measurement paragraphs 48, 48A, 49 and Appendix A
paragraphs AG69–AG82, which sets out the
requirements for determining a reliable measure of
measuring the fair value of a financial liability, apply
equally to all items that are measured at fair value,
whether by designation or otherwise, or whose fair
value is disclosed.
...

13 If an entity is unable to determine measure reliably the

fair value of an embedded derivative on the basis of its
terms and conditions, the fair value of the embedded
derivative is the difference between the fair value of the
hybrid (combined) contract and the fair value of the host
if those can be determined under this Standard. If the
entity is unable to determine measure the fair value of the
embedded derivative using this method, paragraph 12
applies and the hybrid (combined) contract is designated
as at fair value through profit or loss.

88 A hedging relationship qualifies for hedge accounting

under paragraphs 89–102 if, and only if, all of the
following conditions are met.
...
(d) The effectiveness of the hedge can be reliably
measured, ie the fair value or cash flows of the

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hedged item that are attributable to the hedged

risk and the fair value of the hedging instrument
can be reliably measured (see paragraph 47(a)
and Appendix A paragraphs AG80 and AG81 for
guidance on determining fair value).
…

AG64 The fair value of a financial liability on initial recognition

is normally the transaction price (ie the fair value of the
consideration received, see also paragraph AG76 and
FRS 13). However, if part of the consideration given or
received is for something other than the financial liability,
an entity shall measure the fair value of the financial
liability is estimated, using a valuation technique (see
paragraphs AG74–AG79).

AG80 The fair value of derivatives that are linked to and must
be settled by delivery of unquoted equity instruments that
do not have a quoted price in an active market for an
identical instrument (ie a Level 1 input) (see paragraph
47(a)) is reliably measurable if (a) the variability in the
range of reasonable fair value estimates measurements is
not significant for that instrument or (b) the probabilities
of the various estimates within the range can be
reasonably assessed and used in estimating when
measuring fair value.

AG81 There are many situations in which the variability in the

range of reasonable fair value estimates measurements of
derivatives that are linked to and must be settled by
delivery of unquoted equity instruments that do not have
a quoted price in an active market for an identical
instrument (ie a Level 1 input) (see paragraph 47(a)) is
likely not to be significant. Normally it is possible to
estimate measure the fair value of such derivatives that an
entity has acquired from an outside party. However, if the
range of reasonable fair value estimates measurements is
significant and the probabilities of the various estimates
cannot be reasonably assessed, an entity is precluded
from measuring the instrument at fair value.

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AG96 A derivative that is linked to and must be settled by

delivery of unquoted equity instruments that do not have
a quoted price in an active market for an identical
instrument (ie a Level 1 input) and is not carried at fair
value because its fair value cannot otherwise be reliably
measured (see paragraph 47(a)) cannot be designated as a
hedging instrument.

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Consequential Amendments to FRS 9

Financial Instruments (IFRS 9 Financial Instruments issued
by IASB in October 2010)
This Addendum sets out amendments to FRS 9 (IFRS 9 issued by IASB in
October 2010) that are a consequence of the issuance of FRS 13. An entity
shall apply the amendments for annual periods beginning on or after 1
January 2013. If an entity applies FRS 13 for an earlier period, it shall
apply the amendments for that earlier period. Amended paragraphs are
shown with new text underlined and deleted text struck through.

FRS 9 (IFRS 9 issued by IASB in October 2010) is amended as described

below.

(1) Paragraph IN7 is amended as follows:

IN7 In October 2010 the IASB added to IFRS 9 the

requirements for classification and measurement of
financial liabilities:
…
(b) Consistently with the requirements in IFRS 9 for
investments in unquoted equity instruments that do
not have a quoted price in an active market for an
identical instrument (ie a Level 1 input) (and
derivative assets linked to those investments), the
exception from fair value measurement was
eliminated for derivative liabilities that are linked to
and must be settled by delivery of such an unquoted
equity instrument. Under IAS 39, if those
derivatives were not reliably measurable, they were
required to be measured at cost. IFRS 9 requires
them to be measured at fair value.
…

(2) Paragraphs 3.2.14, 4.3.7 and 5.1.1 are amended as follows:

3.2.14 When an entity allocates the previous carrying amount of

a larger financial asset between the part that continues to
be recognised and the part that is derecognised, the fair
value of the part that continues to be recognised needs to
be determined measured. When the entity has a history of

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selling parts similar to the part that continues to be

recognised or other market transactions exist for such
parts, recent prices of actual transactions provide the best
estimate of its fair value. …

4.3.7 If an entity is unable to determine measure reliably the fair

value of an embedded derivative on the basis of its terms
and conditions, the fair value of the embedded derivative is
the difference between the fair value of the hybrid contract
and the fair value of the host, if those can be determined
under this FRS. If the entity is unable to determine
measure the fair value of the embedded derivative using
this method, paragraph 4.3.6 applies and the hybrid
contract is designated as at fair value through profit or loss.

5.1.1 At initial recognition, an entity shall measure a

financial asset or financial liability at its fair value (see
paragraphs 5.4.1–5.4.3 and B5.4.1–B5.4.17) plus or
minus, in the case of a financial asset or financial
liability not at fair value through profit or loss,
transaction costs that are directly attributable to the
acquisition or issue of the financial asset or financial
liability.

(3) Paragraph 5.1.1A is added as follows:

5.1.1A However, if the fair value of the financial asset or

financial liability at initial recognition differs from the
transaction price, an entity shall apply paragraph
B5.1.2A.

(4) Paragraph 5.2.1 is amended as follows:

5.2.1 After initial recognition, an entity shall measure a

financial asset in accordance with paragraphs 4.1.1–
4.1.5 at fair value (see paragraphs 5.4.1, 5.4.2 and
B5.4.1–B5.4.17) or amortised cost (see paragraphs 9
and AG5–AG8 of FRS 139).

(5) The heading above paragraph 5.4.1 and paragraphs 5.4.1–5.4.3 are
deleted.

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(6) Paragraphs 5.6.2, 7.2.5, 7.2.11 and 7.2.12 are amended as follows:

5.6.2 If, in accordance with paragraph 4.4.1, an entity

reclassifies a financial asset so that it is measured at
fair value, its fair value is determined measured at the
reclassification date. Any gain or loss arising from a
difference between the previous carrying amount and
fair value is recognised in profit or loss.

7.2.5 If an entity measures a hybrid contract at fair value in

accordance with paragraph 4.1.4 or paragraph 4.1.5 but the
fair value of the hybrid contract had not been determined
measured in comparative reporting periods, the fair value
of the hybrid contract in the comparative reporting periods
shall be the sum of the fair values of the components (ie
the non-derivative host and the embedded derivative) at the
end of each comparative reporting period.

7.2.11 If an entity previously accounted for an investment in an

unquoted equity instrument that does not have a quoted
price in an active market for an identical instrument (ie a
Level 1 input) (or a derivative asset that is linked to and
must be settled by delivery of such an unquoted equity
instrument) at cost in accordance with FRS 139, it shall
measure that instrument at fair value at the date of initial
application. ...

7.2.12 If an entity previously accounted for a derivative liability

that is linked to and must be settled by delivery of an
unquoted equity instrument that does not have a quoted
price in an active market for an identical instrument (ie a
Level 1 input) at cost in accordance with FRS 139, it
shall measure that derivative liability at fair value at the
date of initial application. ...

(7) Paragraph 7.1.3 is added as follows:

7.1.3 FRS 13 Fair Value Measurement, issued in November

2011, amended paragraphs 3.2.14, 4.3.7, 5.1.1, 5.2.1, 5.4.1,
5.6.2, 7.2.5, 7.2.11, 7.2.12, amended the definition of fair
value in Appendix A, amended paragraphs B3.2.11,
B3.2.17, B5.1.1, B5.2.2, B5.4.8, B5.4.14, B5.4.16,
B5.7.20, Consequential Amendments contained in FRS 9

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(IFRS 9 issued by IASB in October 2010) to FRS 1,

FRS 7, FRS 128, FRS 131, FRS 132, IC Interpretation 2
and IC Interpretation 19, deleted paragraphs 5.4.2, B5.4.1–
B5.4.13 and added paragraphs 5.1.1A, B5.1.2A and
B5.2.2A. An entity shall apply those amendments when it
applies FRS 13.

(8) In Appendix B paragraphs B3.2.11, B3.2.17, B5.1.1 and B5.2.2

are amended as follows:

B3.2.11 In estimating When measuring the fair values of the part

that continues to be recognised and the part that is
derecognised for the purposes of applying paragraph
3.2.13, an entity applies the fair value measurement
requirements in paragraphs 5.4.1–5.4.3 and B5.4.1–
B5.4.13 FRS 13 in addition to paragraph 3.2.14.

B3.2.17 This paragraph illustrates the application of the continuing

involvement approach when the entity’s continuing
involvement is in a part of a financial asset.

Assume an entity has a portfolio of prepayable loans …

The fair value of the loans at the date of the transaction
is CU10,100 and the estimated fair value of the excess
spread of 0.5 per cent is CU40.
…
The entity calculates the gain or loss on the sale of the 90
per cent share of cash flows. Assuming that separate fair
values of the 90 per cent part transferred and the 10 per
cent part retained are not available at the date of the
transfer, the entity allocates the carrying amount of the
asset in accordance with paragraph 28 as follows:
continued…

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…continued
Estimated Percentage Allocated
fair Fair carrying
value amount
Portion
transferred 9,090 90% 9,000
Portion retained 1,010 10% 1,000
Total 10,100 10,000
…

B5.5.1 The fair value of a financial instrument at initial

recognition is normally the transaction price (ie the fair
value of the consideration given or received, see also
paragraph B5.4.8 B5.1.2A and FRS 13). However, if part
of the consideration given or received is for something
other than the financial instrument, an entity shall
measure the fair value of the financial instrument is
estimated using a valuation technique (see paragraphs
B5.4.6–B5.4.12). For example, the fair value of a long-
term loan or receivable that carries no interest can be
estimated measured as the present value of all future cash
receipts discounted using the prevailing market rate(s) of
interest for a similar instrument (similar as to currency,
term, type of interest rate and other factors) with a similar
credit rating. Any additional amount lent is an expense or
a reduction of income unless it qualifies for recognition
as some other type of asset.

(9) Paragraphs B5.1.2A and B5.2.2A are added as follows:

B5.1.2A The best evidence of the fair value of a financial

instrument at initial recognition is normally the
transaction price (ie the fair value of the consideration
given or received, see also FRS 13). If an entity
determines that the fair value at initial recognition differs
from the transaction price as mentioned in paragraph
5.1.1A, the entity shall account for that instrument at that
date as follows:

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(a) at the measurement required by paragraph 5.1.1 if

that fair value is evidenced by a quoted price in an
active market for an identical asset or liability (ie a
Level 1 input) or based on a valuation technique that
uses only data from observable markets. An entity
shall recognise the difference between the fair value
at initial recognition and the transaction price as a
gain or loss.
(b) in all other cases, at the measurement required by
paragraph 5.1.1, adjusted to defer the difference
between the fair value at initial recognition and the
transaction price. After initial recognition, the entity
shall recognise that deferred difference as a gain or
loss only to the extent that it arises from a change in a
factor (including time) that market participants would
take into account when pricing the asset or liability.

B5.2.2A The subsequent measurement of a financial asset or

financial liability and the subsequent recognition of gains
and losses described in paragraph B5.1.2A shall be
consistent with the requirements of this FRS.

(10) Paragraphs B5.4.1–B5.4.13 and their related headings are deleted.

(11) The heading above paragraph B5.4.14 and paragraphs B5.4.14,

B5.4.16 and B5.7.20 are amended as follows:

Investments in unquoted equity instruments (and

contracts on those investments that must be settled by
delivery of the unquoted equity instruments)

B5.4.14 ... That may be the case if insufficient more recent

information is available to determine measure fair value,
or if there is a wide range of possible fair value
measurements and cost represents the best estimate of fair
value within that range.

B5.4.16 ... To the extent that any such relevant factors exist, they
may indicate that cost might not be representative of fair
value. In such cases, the entity must estimate measure fair
value.

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B5.7.20 As with all estimates of fair value measurements, an

entity’s measurement method for determining the portion
of the change in the liability’s fair value that is
attributable to changes in its credit risk must make
maximum use of market relevant observable inputs and
minimum use of unobservable inputs.

(12) In Consequential Amendments to FRS 1 First-time Adoption of

Financial Reporting Standards contained in FRS 9 (IFRS 9 issued
by IASB in October 2010), the amendments to paragraphs D15
and D20 of FRS 1 are further amended as follows:

D15 If a first-time adopter measures such an investment at

cost in accordance with FRS 127, it shall measure that
investment at one of the following amounts in its separate
opening FRS statement of financial position:
…
(b) deemed cost. The deemed cost of such an
investment shall be its:
(i) fair value (determined in accordance with
FRS 9) at the entity’s date of transition to
FRSs in its separate financial statements; or
…

D20 Despite the requirements of paragraphs 7 and 9, an entity

may apply the requirements in the last sentence of
paragraph B5.4.8 and in paragraph B5.4.9 B5.1.2A(b) of
FRS 9, in either of the following ways:
…

(13) In Consequential Amendments to FRS 7 Financial Instruments:

Disclosures contained in FRS 9 (IFRS 9 issued by IASB in
October 2010), the amendments to paragraph 28 of FRS 7 are
further amended as follows:

28 If the market for a financial instrument is not active, an

entity establishes its fair value using a valuation
technique (see paragraphs B5.4.6–B5.4.12 of FRS 9).
Nevertheless, the best evidence of fair value at initial
recognition is the transaction price (ie the fair value of the
consideration given or received), unless the conditions

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described in paragraph B5.4.8 of FRS 9 are met. It

follows that there could be a difference between the fair
value at initial recognition and the amount that would be
determined at that date using the valuation technique. If
such a difference exists, an entity shall disclose, by class
of financial instrument: In some cases, an entity does not
recognise a gain or loss on initial recognition of a
financial asset or financial liability because the fair value
is neither evidenced by a quoted price in an active market
for an identical asset or liability (ie a Level 1 input) nor
based on a valuation technique that uses only data from
observable markets (see paragraph B5.1.2A of FRS 9). In
such cases, the entity shall disclose by class of financial
asset or financial liability:
(a) its accounting policy for recognising in profit or loss
the that difference between the fair value at initial
recognition and the transaction price in profit or loss
to reflect a change in factors (including time) that
market participants would consider in setting a price
take into account when pricing the asset or liability
(see paragraph B5.4.9 B5.1.2A(b) of FRS 9). ; and
…
(c) why the entity concluded that the transaction price
was not the best evidence of fair value, including a
description of the evidence that supports the fair
value.

(14) In Consequential Amendments to FRS 128 Investments in

Associates contained in FRS 9 (IFRS 9 issued by IASB in October
2010), the amendments to paragraph 1 of FRS 128 are further
amended as follows:

1 This Standard shall be applied in accounting for

investments in associates. However, it does not apply
to investments in associates held by:
(a) venture capital organisations, or
(b) mutual funds, unit trusts and similar entities
including investment-linked insurance funds

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that are measured at fair value through profit or loss

in accordance with FRS 9 Financial Instruments. An
entity shall measure such investments at fair value
through profit or loss in accordance with FRS 9. An
entity holding such an investment shall make the
disclosures required by paragraph 37(f).

(15) In Consequential Amendments to FRS 131 Interests in Joint

Ventures contained in FRS 9 (IFRS 9 issued by IASB in October
2010), the amendments to paragraph 1 FRS 131 are further
amended as follows:

1 This Standard shall be applied in accounting for

interests in joint ventures and the reporting of joint
venture assets, liabilities, income and expenses in the
financial statements of venturers and investors,
regardless of the structures or forms under which the
joint venture activities take place. However, it does
not apply to venturers’ interests in jointly controlled
entities held by:
(a) venture capital organisations, or
(b) mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that are measured at fair value through profit or loss
in accordance with FRS 9 Financial Instruments. An
entity shall measure such investments at fair value
through profit or loss in accordance with FRS 9. A
venturer holding such an interest shall make the
disclosures required by paragraphs 55 and 56.

(16) In Consequential Amendments to FRS 132 Financial Instruments:

Presentation contained in FRS 9 (IFRS 9 issued by IASB in
October 2010), the amendments to paragraph 23 of FRS 132 are
further amended as follows:

23 … One example is an entity’s obligation under a forward

contract to purchase its own equity instruments for cash.
When the The financial liability is recognised initially at
under FRS 9, its fair value (the present value of the
redemption amount), and is reclassified from equity. …

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(17) In Consequential Amendments to IC Interpretation 2 Members’

Shares in Co-operative Entities and Similar Instruments contained
in FRS 9 (IFRS 9 issued by IASB in October 2010), the
amendments to paragraph A8 of IC Interpretation 2 are further
amended as follows:

A8 Members’ shares in excess of the prohibition against

redemption are financial liabilities. The co-operative
entity measures this financial liability at fair value at
initial recognition. Because these shares are redeemable
on demand, the co-operative entity determines measures
the fair value of such financial liabilities in accordance
with paragraph 47 of FRS 13 as required by paragraph
5.4.3 of FRS 9, which states: ‘The fair value of a
financial liability with a demand feature (eg a demand
deposit) is not less than the amount payable on demand
…’ Accordingly, the co-operative entity classifies as
financial liabilities the maximum amount payable on
demand under the redemption provisions.

(18) In Consequential Amendments to IC Interpretation 19

Extinguishing Financial Liabilities with Equity Instruments
contained in FRS 9 (IFRS 9 issued by IASB in October 2010), the
amendments to paragraph 7 of IC Interpretation 19 are further
amended as follows:

7 If the fair value of the equity instruments issued cannot

be reliably measured then the equity instruments shall be
measured to reflect the fair value of the financial liability
extinguished. In measuring the fair value of a financial
liability extinguished that includes a demand feature (eg a
demand deposit), paragraph 5.4.3 47 of FRS 9 FRS 13 is
not applied.

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Consequential Amendments to FRS 101

Presentation of Financial Statements
This Addendum sets out amendments to FRS 101 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 101 is amended as described below.

(1) Paragraphs 128 and 133 are amended as follows:

128 The disclosures in paragraph 125 are not required for

assets and liabilities with a significant risk that their
carrying amounts might change materially within the next
financial year if, at the end of the reporting period, they
are measured at fair value based on recently observed
market prices a quoted price in an active market for an
identical asset or liability. Such fair values might change
materially within the next financial year but these
changes would not arise from assumptions or other
sources of estimation uncertainty at the end of the
reporting period.

133 Other FRSs require the disclosure of some of the

assumptions that would otherwise be required in
accordance with paragraph 125. For example, FRS 137
requires disclosure, in specified circumstances, of major
assumptions concerning future events affecting classes of
provisions. FRS 7 FRS 13 Fair Value Measurement
requires disclosure of significant assumptions (including
the valuation technique(s) and inputs) the entity uses
when measuring in estimating the fair values of financial
assets and financial liabilities that are carried at fair
value. FRS 116 requires disclosure of significant
assumptions that the entity uses in estimating the fair
values of revalued items of property, plant and
equipment.

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(2) Paragraph 139I is added as follows:

139I FRS 13, issued in November 2011, amended paragraphs

128 and 133. An entity shall apply those amendments
when it applies FRS 13.

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Consequential Amendments to FRS 102

Inventories
This Addendum sets out amendments to FRS 102 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 102 is amended as described below.

(1) Paragraph 7 is amended as follows:

7 Net realisable value refers to the net amount that an entity

expects to realise from the sale of inventory in the
ordinary course of business. Fair value reflects the
amount for which the same inventory could be exchanged
between knowledgeable and willing buyers and sellers in
the marketplace. Fair value reflects the price at which an
orderly transaction to sell the same inventory in the
principal (or most advantageous) market for that
inventory would take place between market participants
at the measurement date. The former is an entity-specific
value; the latter is not. Net realisable value for inventories
may not equal fair value less costs to sell.

(2) Paragraph 40C is added as follows:

40C FRS 13, issued in November 2011, amended the definition

of fair value in paragraph 6 and amended paragraph 7. An
entity shall apply those amendments when it applies
FRS 13.

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Consequential Amendments to FRS 108

Accounting Policies, Changes in Accounting Estimates
and Errors
This Addendum sets out amendments to FRS 108 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.
FRS 108 is amended as described below.
(1) Paragraph 52 is amended as follows:

52 Therefore, retrospectively applying a new accounting

policy or correcting a prior period error requires
distinguishing information that
(a) provides evidence of circumstances that existed on
the date(s) as at which the transaction, other event
or condition occurred, and
(b) would have been available when the financial
statements for that prior period were authorised for
issue
from other information. For some types of estimates (eg
an estimate of a fair value measurement that uses
significant unobservable not based on an observable price
or observable inputs), it is impracticable to distinguish
these types of information. When retrospective
application or retrospective restatement would require
making a significant estimate for which it is impossible to
distinguish these two types of information, it is
impracticable to apply the new accounting policy or
correct the prior period error retrospectively.

(2) Paragraph 54C is added as follows:

54C FRS 13 Fair Value Measurement, issued in November

2011, amended paragraph 52. An entity shall apply that
amendment when it applies FRS 13.

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Consequential Amendments to FRS 110

Events after the Reporting Period
This Addendum sets out amendments to FRS 110 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 110 is amended as described below.

(1) Paragraph 11 is amended as follows:

11 An example of a non-adjusting event after the reporting

period is a decline in market fair value of investments
between the end of the reporting period and the date
when the financial statements are authorised for issue.
The decline in market fair value does not normally relate
to the condition of the investments at the end of the
reporting period, but reflects circumstances that have
arisen subsequently. …

(2) Paragraph 23A is added as follows:

23A FRS 13, issued in November 2011, amended paragraph

11. An entity shall apply that amendment when it applies
FRS 13.

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Consequential Amendments to FRS 116

Property, Plant and Equipment
This Addendum sets out amendments to FRS 116 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 116 is amended as described below.

(1) Paragraph 26 is amended as follows:

26 The fair value of an asset for which comparable market

transactions do not exist is reliably measurable if (a) the
variability in the range of reasonable fair value estimates
measurements is not significant for that asset or (b) the
probabilities of the various estimates within the range can
be reasonably assessed and used in estimating when
measuring fair value. If an entity is able to determine
measure reliably the fair value of either the asset received
or the asset given up, then the fair value of the asset given
up is used to measure the cost of the asset received unless
the fair value of the asset received is more clearly evident.

(2) Paragraphs 32 and 33 are deleted.

(3) Paragraphs 35 and 77 are amended as follows:

35 When an item of property, plant and equipment is

revalued, any accumulated depreciation at the date of the
revaluation is treated in one of the following ways:
(a) restated proportionately with the change in the gross
carrying amount of the asset so that the carrying
amount of the asset after revaluation equals its
revalued amount.
This method is often used when an asset is revalued
by means of applying an index to determine its
depreciated replacement cost (see FRS 13).
…

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77 If items of property, plant and equipment are stated

at revalued amounts, the following shall be disclosed
in addition to the disclosures required by FRS 13:
…
(c) [deleted by IASB] the methods and significant
assumptions applied in estimating the items’ fair
values;
(d) [deleted by IASB] the extent to which the items’
fair values were determined directly by reference
to observable prices in an active market or
recent market transactions on arm’s length
terms or were estimated using other valuation
techniques;
…

(4) Paragraph 81F is added as follows:

81F FRS 13, issued in November 2011, amended the definition

of fair value in paragraph 6, amended paragraphs 26, 35
and 77 and deleted paragraphs 32 and 33. An entity shall
apply those amendments when it applies FRS 13.

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Consequential Amendments to FRS 117

Leases
This Addendum sets out amendments to FRS 117 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 117 is amended as described below.

Paragraph 6A is added as follows:

6A FRS 117 uses the term ‘fair value’ in a way that differs in some
respects from the definition of fair value in FRS 13 Fair Value
Measurement. Therefore, when applying FRS 117 an entity
measures fair value in accordance with FRS 117, not FRS 13.

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Consequential Amendments to FRS 118

Revenue
This Addendum sets out amendments to FRS 117 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 118 is amended as described below.

(1) In the rubric ‘paragraphs 1–41’ is amended to ‘paragraphs 1–42’.

(2) Paragraph 42 is added as follows:

42 FRS 13, issued in November 2011, amended the definition

of fair value in paragraph 7. An entity shall apply that
amendment when it applies FRS 13.

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Consequential Amendments to FRS 119

Employee Benefits
This Addendum sets out amendments to FRS 119 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 119 is amended as described below.

(1) In the rubric, ‘paragraphs 1–161’ is amended to ‘paragraphs 1–

162’.

(2) Paragraphs 50 and 102 are amended as follows:

50 Accounting by an entity for defined benefit plans

involves the following steps:
…
(c) determining measuring the fair value of any plan
assets (see paragraphs 102–104);
…

102 The fair value of any plan assets is deducted in

determining the amount recognised in the statement of
financial position in accordance with under paragraph 54.
When no market price is available, the fair value of plan
assets is estimated; for example, by discounting expected
future cash flows using a discount rate that reflects both
the risk associated with the plan assets and the maturity
or expected disposal date of those assets (or, if they have
no maturity, the expected period until the settlement of
the related obligation).

(3) Paragraph 162 is added as follows:

162 FRS 13, issued in November 2011, amended the definition

of fair value in paragraph 7 and amended paragraphs 50
and 102. An entity shall apply those amendments when it
applies FRS 13.

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Consequential Amendments to FRS 120

Accounting for Government Grants and Disclosure of
Government Assistance
This Addendum sets out amendments to FRS 120 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 120 is amended as described below.

(1) In the rubric ‘paragraphs 1–44’ is amended to ‘paragraphs 1–45’.

(2) Paragraph 45 is added as follows:

45 FRS 13, issued in November 2011, amended the

definition of fair value in paragraph 3. An entity shall
apply that amendment when it applies FRS 13.

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Consequential Amendments to FRS 121

The Effects of Changes in Foreign Exchange Rates
This Addendum sets out amendments to FRS 121 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 121 is amended as described below.

(1) Paragraph 23 is amended as follows:

23 At the end of each reporting period:

…
(c) non-monetary items that are measured at fair
value in a foreign currency shall be translated
using the exchange rates at the date when the fair
value was determined measured.

(2) Paragraph 60G is added as follows:

60G FRS 13, issued in November 2011, amended the

definition of fair value in paragraph 8 and amended
paragraph 23. An entity shall apply those amendments
when it applies FRS 13.

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Consequential Amendments to FRS 128

Investments in Associates
This Addendum sets out amendments to FRS 128 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 128 is amended as described below.

(1) Paragraphs 1 and 37 are amended as follows:

1 This Standard shall be applied in accounting for

investments in associates. However, it does not apply
to investments in associates held by:
(a) venture capital organisations, or
(b) mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that upon initial recognition are designated as at fair
value through profit or loss or are classified as held for
trading and accounted for in accordance with FRS 139
Financial Instruments: Recognition and Measurement.
For such Such investments shall be measured at fair
value in accordance with FRS 139, an entity shall
recognise with changes in fair value recognised in profit
or loss in the period of the change. An entity holding
such an investment shall make the disclosures required
by paragraph 37(f).

37 The following disclosures shall be made:

(a) the fair value of investments in associates for
which there are published price quotations
quoted market prices;
…

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(2) Paragraph 41G is added as follows:

41G FRS 13 Fair Value Measurement, issued in November

2011, amended paragraphs 1 and 37. An entity shall
apply those amendments when it applies FRS 13.

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Consequential Amendments to FRS 131

Interests in Joint Ventures
This Addendum sets out amendments to FRS 131 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 131 is amended as described below.

(1) Paragraph 1 is amended as follows:

1 This Standard shall be applied in accounting for

interests in joint ventures and the reporting of joint
venture assets, liabilities, income and expenses in the
financial statements of venturers and investors,
regardless of the structures or forms under which the
joint venture activities take place. However, it does
not apply to venturers’ interests in jointly controlled
entities held by:
(a) venture capital organisations, or
(b) mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that upon initial recognition are designated as at fair
value through profit or loss or are classified as held
for trading and accounted for in accordance with FRS
139 Financial Instruments: Recognition and
Measurement. For such Such investments shall be
measured at fair value in accordance with FRS 139,
an entity shall recognise with changes in fair value
recognised in profit or loss in the period of the change.
A venturer holding such an interest shall make the
disclosures required by paragraphs 55 and 56.

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(2) Paragraph 58F is added as follows:

58F FRS 13 Fair Value Measurement, issued in November

2011, amended paragraph 1. An entity shall apply that
amendment when it applies FRS 13.

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Consequential Amendments to FRS 132

Financial Instruments: Presentation
This Addendum sets out amendments to FRS 132 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 132 is amended as described below.

(1) Paragraph 23 is amended as follows:

23 … When the The financial liability is recognised initially

under FRS 139, its fair value (at the present value of the
redemption amount), and is reclassified from equity. …

(2) Paragraph 97J is added as follows:

97J FRS 13, issued in November 2011, amended the

definition of fair value in paragraph 11 and amended
paragraphs 23 and AG31. An entity shall apply those
amendments when it applies FRS 13.

(3) In the Application Guidance paragraph AG31 is amended as

follows:

AG31 A common form of compound financial instrument is a

debt instrument with an embedded conversion option,
such as a bond convertible into ordinary shares of the
issuer, and without any other embedded derivative
features. Paragraph 28 requires the issuer of such a
financial instrument to present the liability component
and the equity component separately in the statement of
financial position, as follows:
…

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(b) The equity instrument is an embedded option to

convert the liability into equity of the issuer. The
fair value of the option comprises its time value and
its intrinsic value, if any. This option has value on
initial recognition even when it is out of the money.

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Consequential Amendments to FRS 133

Earnings per Share
This Addendum sets out amendments to FRS 133 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 133 is amended as described below.

(1) Paragraphs 8 and 47A are amended as follows:

8 Terms defined in FRS 132 Financial Instruments:

Presentation are used in this Standard with the meanings
specified in paragraph 11 of FRS 132, unless otherwise
noted. FRS 132 defines financial instrument, financial
asset, financial liability, and equity instrument and fair
value, and provides guidance on applying those
definitions. FRS 13 Fair Value Measurement defines fair
value and sets out requirements for applying that
definition.

47A For share options and other share-based payment

arrangements to which FRS 2 Share-based Payment
applies, the issue price referred to in paragraph 46 and the
exercise price referred to in paragraph 47 shall include
the fair value (measured in accordance with FRS 2) of
any goods or services to be supplied to the entity in the
future under the share option or other share-based
payment arrangement.

(2) Paragraph 74C is added as follows:

74C FRS 13, issued in November 2011, amended paragraphs

8, 47A and A2. An entity shall apply those amendments
when it applies FRS 13.

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(3) In Appendix A paragraph A2 is amended as follows:

A2 The issue of ordinary shares at the time of exercise or

conversion of potential ordinary shares does not usually
give rise to a bonus element. This is because the potential
ordinary shares are usually issued for full fair value,
resulting in a proportionate change in the resources
available to the entity. In a rights issue, however, the
exercise price is often less than the fair value of the
shares. … The theoretical ex-rights fair value per share is
calculated by adding the aggregate market fair value of
the shares immediately before the exercise of the rights to
the proceeds from the exercise of the rights, and dividing
by the number of shares outstanding after the exercise of
the rights. Where the rights are to be publicly traded
separately from the shares before the exercise date, fair
value for the purposes of this calculation is established
measured at the close of the last day on which the shares
are traded together with the rights.

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Consequential Amendments to FRS 134

Interim Financial Reporting
This Addendum sets out amendments to FRS 134 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 134 is amended as described below.

(1) In the rubric ‘paragraphs 1–49’ is amended to ‘paragraphs 1–50’.

(2) Paragraph 16A(j) is added as follows:

16A In addition to disclosing significant events and

transactions in accordance with paragraphs 15–15C,
an entity shall include the following information, in
the notes to its interim financial statements, if not
disclosed elsewhere in the interim financial report.
The information shall normally be reported on a
financial year-to-date basis.
…
(j) for financial instruments, the disclosures about
fair value required by paragraphs 91–93(h),
94–96, 98 and 99 of FRS 13 Fair Value
Measurement and paragraphs 25, 26 and 28–30
of FRS 7 Financial Instruments: Disclosures.

(3) Paragraph 50 is added as follows:

50 FRS 13, issued in November 2011, added paragraph

16A(j). An entity shall apply that amendment when it
applies FRS 13.

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Consequential Amendments to FRS 136

Impairment of Assets
This Addendum sets out amendments to FRS 136 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 136 is amended as described below.

(1) Paragraph 5 is amended as follows:

5 This Standard does not apply to financial assets within

the scope of FRS 139, investment property measured at
fair value in accordance with within the scope of FRS
140, or biological assets related to agricultural activity
measured at fair value less costs to sell in accordance
with within the scope of FRS 141. However, this
Standard applies to assets that are carried at revalued
amount (ie fair value at the date of the revaluation less
any subsequent accumulated depreciation and subsequent
accumulated impairment losses) in accordance with other
FRSs, such as the revaluation models in FRS 116
Property, Plant and Equipment and FRS 138 Intangible
Assets. The only difference between an asset’s fair value
and its fair value less costs of disposal is the direct
incremental costs attributable to the disposal of the asset.
Identifying whether a revalued asset may be impaired
depends on the basis used to determine fair value:
(a) if the asset’s fair value is its market value, the only
difference between the asset’s fair value and its fair
value less costs to sell is the direct incremental costs
to dispose of the asset:
(i) if If the disposal costs are negligible, the
recoverable amount of the revalued asset is
necessarily close to, or greater than, its
revalued amount (ie fair value). In this case,
after the revaluation requirements have been
applied, it is unlikely that the revalued asset is

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impaired and recoverable amount need not be

estimated.
(ii) if the disposal costs are not negligible, the fair
value less costs to sell 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 (ie fair
value). In this case, after the revaluation
requirements have been applied, an entity
applies this Standard to determine whether the
asset may be impaired.
(b) [deleted by IASB] if the asset’s fair value is
determined on a basis other than its market value, its
revalued amount (ie fair value) may be greater or
lower than its recoverable amount. Hence, after the
revaluation requirements have been applied, an
entity applies this Standard to determine whether the
asset may be impaired.
(c) 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, an
entity applies this Standard to determine whether the
asset may be impaired.

(2) Paragraph 6 is amended as follows (as a consequence of the

amendment to the definition of fair value less costs to sell, all
references to ‘fair value less costs to sell’ in FRS 136 are replaced
with ‘fair value less costs of disposal’):

6 The following terms are used in this Standard with the

meanings specified:
An active market is a market where all the following
conditions exist:
(a) the items traded within the market are
homogeneous;

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(b) willing buyers and sellers can normally be found

at any time; and
(c) prices are available to the public.
Fair value less costs to sell is the amount obtainable
from the sale of an asset or cash-generating unit in an
arm’s length transaction between knowledgeable,
willing parties, less the costs of disposal is the price
that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between
market participants at the measurement date. (See
FRS 13 Fair Value Measurement.)

(3) Paragraphs 12, 20 and 22 are amended as follows:

12 In assessing whether there is any indication that an

asset may be impaired, an entity shall consider, as a
minimum, the following indications:
External sources of information
(a) during the period, there are observable
indications that the an asset’s market value has
declined during the period significantly more
than would be expected as a result of the passage
of time or normal use.
…

20 It may be possible to determine measure fair value less

costs to sell of disposal, even if there is not a quoted price
in an active market for an identical asset is not traded in
an active market. However, sometimes it will not be
possible to determine measure fair value less costs to sell
of disposal because there is no basis for making a reliable
estimate of the amount obtainable from the sale of the
asset in an arm’s length transaction between
knowledgeable and willing parties price at which an
orderly transaction to sell the asset would take place
between market participants at the measurement date
under current market conditions. In this case, the entity
may use the asset’s value in use as its recoverable
amount.

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22 Recoverable amount is determined for an individual asset

… unless either:
…
(b) the asset’s value in use can be estimated to be close
to its fair value less costs to sell of disposal and fair
value less costs to sell of disposal can be determined
measured.

(4) Paragraphs 25–27 are deleted.

(5) Paragraph 28 is amended as follows:

28 Costs of disposal, other than those that have been

recognised as liabilities, are deducted in determining
measuring fair value less costs to sell of disposal.
Examples …

(6) Paragraph 53A is added as follows:

53A 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:
(a) additional value derived from the grouping of assets
(such as the creation of a portfolio of investment
properties in different locations);
(b) synergies between the asset being measured and
other assets;
(c) legal rights or legal restrictions that are specific only
to the current owner of the asset; and
(d) tax benefits or tax burdens that are specific to the
current owner of the asset.

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(7) Paragraphs 78, 105, 111, 130 and 134 are amended as follows:

78 It may be necessary to consider some recognised

liabilities to determine the recoverable amount of a
cash-generating unit. This may occur if the disposal of a
cash-generating unit would require the buyer to assume
the liability. In this case, the fair value less costs to sell of
disposal (or the estimated cash flow from ultimate
disposal) of the cash-generating unit is the estimated
selling price to sell for the assets of the cash-generating
unit and the liability together, less the costs of disposal.
To perform a meaningful comparison between the
carrying amount of the cash-generating unit and its
recoverable amount, the carrying amount of the liability
is deducted in determining both the cash-generating unit’s
value in use and its carrying amount.

105 In allocating an impairment loss in accordance with

paragraph 104, an entity shall not reduce the
carrying amount of an asset below the highest of:
(a) its fair value less costs to sell of disposal (if
determinable measurable);
…

111 In assessing whether there is any indication that an

impairment loss recognised in prior periods for an
asset other than goodwill may no longer exist or may
have decreased, an entity shall consider, as a
minimum, the following indications:
External sources of information
(a) there are observable indications that the asset’s
market value has increased significantly during
the period.
…

130 An entity shall disclose the following for each material

impairment loss recognised or reversed during the
period for an individual asset, including goodwill, or a
cash-generating unit:
…

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(f) if recoverable amount is fair value less costs to

sell of disposal, the basis used to determine
measure fair value less costs to sell of disposal
(such as whether fair value was determined
measured by reference to a quoted price in an
active market for an identical asset). An entity is
not required to provide the disclosures required
by FRS 13.

134 An entity shall disclose the information required by

(a)–(f) for each cash-generating unit (group of units) for
which the carrying amount of goodwill or intangible
assets with indefinite useful lives allocated to that unit
(group of units) is significant in comparison with the
entity’s total carrying amount of goodwill or intangible
assets with indefinite useful lives:
…
(c) the recoverable amount of the unit (or group of
units) and the basis on which the unit’s (group of
units’) recoverable amount has been determined
(ie value in use or fair value less costs to sell of
disposal).
(d) if the unit’s (group of units’) recoverable amount
is based on value in use:
(i) a description of each key assumption on
which management has based its cash flow
projections for the period covered by the
most recent budgets/forecasts. Key
assumptions are those to which the unit’s
(group of units’) recoverable amount is
most sensitive.
…
(e) if the unit’s (group of units’) recoverable amount
is based on fair value less costs to sell of disposal,
the methodology valuation technique(s) used to
determine measure fair value less costs to sell of
disposal. An entity is not required to provide the
disclosures required by FRS 13. If fair value less
costs to sell of disposal is not determined

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measured using an observable market a quoted

price for the an identical unit (group of units), an
entity shall disclose the following information
shall also be disclosed:
(i) a description of each key assumption on
which management has based its
determination of fair value less costs to sell
of disposal. Key assumptions are those to
which the unit’s (group of units’)
recoverable amount is most sensitive.
…
(iiA) the level of the fair value hierarchy (see
FRS 13) within which the fair value
measurement is categorised in its entirety
(without giving regard to the observability
of ‘costs of disposal’).
(iiB) if there has been a change in valuation
technique, the change and the reason(s) for
making it.
If fair value less costs to sell of disposal is
determined measured using discounted cash flow
projections, an entity shall disclose the following
information shall also be disclosed:
(iii) the period over which management has
projected cash flows.
(iv) the growth rate used to extrapolate cash
flow projections.
(v) the discount rate(s) applied to the cash flow
projections.
…

(8) Paragraph 140I is added as follows:

140I FRS 13, issued in November 2011, amended paragraphs

5, 6, 12, 20, 28, 78, 105, 111, 130 and 134, deleted
paragraphs 25–27 and added paragraph 53A. An entity
shall apply those amendments when it applies FRS 13.

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Consequential Amendments to FRS 138

Intangible Assets
This Addendum sets out amendments to FRS 138 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 138 is amended as described below.

(1) Paragraph 8 is amended as follows:

8 The following terms are used in this Standard with the
meanings specified:
An active market is a market in which all the following
conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found
at any time; and
(c) prices are available to the public.
...
Fair value of an asset is the amount for which that
asset could be exchanged between knowledgeable,
willing parties in an arm’s length transaction is the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between
market participants at the measurement date. (See
FRS 13 Fair Value Measurement.)

(2) Paragraph 33 is amended as follows:

33 In accordance with FRS 3 Business Combinations, if an

intangible asset is acquired in a business combination, the
cost of that intangible asset is its fair value at the
acquisition date. The fair value of an intangible asset will
reflect market participants’ expectations at the acquisition
date about the probability that the expected future
economic benefits embodied in the asset will flow to the
entity. …

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(3) The heading above paragraph 35 is amended as follows:

Measuring the fair value of an i Intangible

asset acquired in a business combination
(4) Paragraphs 39–41 are deleted.

(5) Paragraphs 47, 50, 75, 78, 82, 84 and 100 are amended as follows:

47 Paragraph 21(b) specifies that a condition for the

recognition of an intangible asset is that the cost of the
asset can be measured reliably. The fair value of an
intangible asset for which comparable market transactions
do not exist is reliably measurable if (a) the variability in
the range of reasonable fair value estimates measurements
is not significant for that asset or (b) the probabilities of the
various estimates within the range can be reasonably
assessed and used in estimating when measuring fair value.
If an entity is able to determine measure reliably the fair
value of either the asset received or the asset given up, then
the fair value of the asset given up is used to measure cost
unless the fair value of the asset received is more clearly
evident.

50 Differences between the market fair value of an entity

and the carrying amount of its identifiable net assets at
any time may capture a range of factors that affect the fair
value of the entity. However, such differences do not
represent the cost of intangible assets controlled by the
entity.

75 … For the purpose of revaluations under this

Standard, fair value shall be determined measured by
reference to an active market. …

78 It is uncommon for an active market with the

characteristics described in paragraph 8 to exist for an
intangible asset, although this may happen. …

82 If the fair value of a revalued intangible asset can no

longer be determined measured by reference to an
active market, the carrying amount of the asset shall

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be its revalued amount at the date of the last

revaluation by reference to the active market less any
subsequent accumulated amortisation and any
subsequent accumulated impairment losses.

84 If the fair value of the asset can be determined measured

by reference to an active market at a subsequent
measurement date, the revaluation model is applied from
that date.

100 The residual value of an intangible asset with a finite

useful life shall be assumed to be zero unless:
…
(b) there is an active market (as defined in FRS 13)
for the asset and:
…

(6) Paragraph 124 is amended as follows:

124 If intangible assets are accounted for at revalued

amounts, an entity shall disclose the following:
(a) by class of intangible assets:
…
(iii) the carrying amount … paragraph 74; and
(b) the amount of … shareholders; and .
(c) [deleted by IASB] the methods and significant
assumptions applied in estimating the assets’ fair
values.

(7) Paragraph 130E is deleted.

(8) Paragraph 130G is added as follows:

130G FRS 13, issued in November 2011, amended paragraphs

8, 33, 47, 50, 75, 78, 82, 84, 100 and 124 and deleted
paragraphs 39–41 and 130E. An entity shall apply those
amendments when it applies FRS 13.

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Consequential Amendments to FRS 139

Financial Instruments: Recognition and Measurement
This Addendum sets out amendments to FRS 139 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 139 is amended as described below.

(1) The heading above paragraph IN18 and paragraphs IN18 and IN19
are deleted.
(2) Paragraph 9 is amended as follows:
9 The following terms are used in this Standard with the
meanings specified:
…
It should be noted that FRS 13 Fair Value
Measurement paragraphs 48, 48A, 49 and
Appendix A paragraphs AG69–AG82, which
sets out the requirements for determining a
reliable measure of measuring the fair value of
a financial asset or financial liability, apply
equally to all items that are measured at fair
value, whether by designation or otherwise, or
whose fair value is disclosed.
...
Fair value is the amount for which an asset could
be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length
transaction.* price that would be received to sell
an asset or paid to transfer a liability in an
orderly transaction between market participants
at the measurement date. (See FRS 13.)
...
The footnote to the definition of fair value is deleted.

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(3) Paragraphs 13 and 28 are amended as follows:

13 If an entity is unable to determine measure reliably the

fair value of an embedded derivative on the basis of its
terms and conditions (for example, because the embedded
derivative is based on an unquoted equity instrument that
does not have a quoted price in an active market for an
identical instrument, ie a Level 1 input), the fair value of
the embedded derivative is the difference between the fair
value of the hybrid (combined) instrument and the fair
value of the host contract, if those can be determined
under this Standard. If the entity is unable to determine
measure the fair value of the embedded derivative using
this method, paragraph 12 applies and the hybrid
(combined) instrument is designated as at fair value
through profit or loss.

28 When an entity allocates the previous carrying amount of

a larger financial asset between the part that continues to
be recognised and the part that is derecognised, the fair
value of the part that continues to be recognised needs to
be determined measured. ...

(4) Paragraph 43A is added.

43A However, if the fair value of the financial asset or

financial liability at initial recognition differs from the
transaction price, an entity shall apply paragraph
AG76.

(5) Paragraph 47 is amended as follows:

47 After initial recognition, an entity shall measure all

financial liabilities at amortised cost using the
effective interest method, except for:
(a) financial liabilities at fair value through profit or
loss. Such liabilities, including derivatives that
are liabilities, shall be measured at fair value
except for a derivative liability that is linked to
and must be settled by delivery of an unquoted
equity instrument that does not have a quoted
price in an active market for an identical

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instrument (ie a Level 1 input) whose fair value

cannot otherwise be reliably measured, which
shall be measured at cost.
…

(6) Paragraphs 48–49 are deleted.

(7) Paragraph 88 is amended as follows:

88 A hedging relationship qualifies for hedge accounting

under paragraphs 89–102 if, and only if, all of the
following conditions are met.
…
(d) The effectiveness of the hedge can be reliably
measured, ie the fair value or cash flows of the
hedged item that are attributable to the hedged
risk and the fair value of the hedging instrument
can be reliably measured (see paragraphs 46 and
47 and Appendix A paragraphs AG80 and AG81
for guidance on determining fair value).
…

(8) Paragraph 103Q is added as follows:

103Q FRS 13, issued in November 2011, amended paragraphs

9, 13, 28, 47, 88, AG46, AG52, AG64, AG76, AG76A,
AG80, AG81 and AG96, added paragraph 43A and
deleted paragraphs 48–49, AG69–AG75, AG77–AG79
and AG82. An entity shall apply those amendments when
it applies FRS 13.

(9) In Appendix A paragraphs AG46, AG52 and AG64 are amended

as follows:

AG46 In estimating When measuring the fair values of the part

that continues to be recognised and the part that is
derecognised for the purposes of applying paragraph 27,
an entity applies the fair value measurement requirements
in FRS 13 and paragraphs 48–49 and AG69–AG82 in
addition to paragraph 28.

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AG52 This paragraph illustrates the application of the

continuing involvement approach when the entity’s
continuing involvement is in a part of a financial asset.

Assume an entity has a portfolio of prepayable loans …

The fair value of the loans at the date of the transaction
is CU10,100 and the estimated fair value of the excess
spread of 0.5 per cent is CU40.
…
The entity calculates the gain or loss on the sale of the 90
per cent share of cash flows. Assuming that separate fair
values of the 90 per cent part transferred and the 10 per
cent part retained are not available at the date of the
transfer, the entity allocates the carrying amount of the
asset in accordance with paragraph 28 as follows:

Estimated Percentage Allocated

fair Fair carrying
value amount
Portion
transferred 9,090 90% 9,000
Portion retained 1,010 10% 1,000
Total 10,100 10,000
…

(10) Paragraph AG64 is amended as follows:

AG64 The fair value of a financial instrument on initial

recognition is normally the transaction price (ie the fair
value of the consideration given or received, see also FRS 13
and paragraph AG76). However, if part of the consideration
given or received is for something other than the financial
instrument, an entity shall measure the fair value of the
financial instrument is estimated using a valuation
technique (see paragraphs AG74–AG79). For example, the
fair value of a long-term loan or receivable that carries no
interest can be estimated measured as the present value of
all future cash receipts discounted using the prevailing
market rate(s) of interest for a similar instrument (similar as

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to currency, term, type of interest rate and other factors)

with a similar credit rating. Any additional amount lent is an
expense or a reduction of income unless it qualifies for
recognition as some other type of asset.

(11) Paragraphs AG69–AG75 and their related headings are deleted.

(12) Paragraph AG76 is amended as follows:

AG76 Therefore, a valuation technique (a) incorporates all factors

that market participants would consider in setting a price
and (b) is consistent with accepted economic
methodologies for pricing financial instruments.
Periodically, an entity calibrates the valuation technique
and tests it for validity using prices from any observable
current market transactions in the same instrument (ie
without modification or repackaging) or based on any
available observable market data. An entity obtains market
data consistently in the same market where the instrument
was originated or purchased. The best evidence of the fair
value of a financial instrument at initial recognition is
normally the transaction price (ie the fair value of the
consideration given or received, see also FRS 13). If an
entity determines that the fair value at initial recognition
differs from the transaction price as mentioned in
paragraph 43A, the entity shall account for unless the fair
value of that instrument at that date as follows:
(a) at the measurement required by paragraph 43 if that
fair value is evidenced by comparison with other
observable current market transactions in the same
instrument (ie without modification or repackaging) a
quoted price in an active market for an identical asset
or liability (ie a Level 1 input) or based on a valuation
technique whose variables include that uses only data
from observable markets. An entity shall recognise the
difference between the fair value at initial recognition
and the transaction price as a gain or loss.
(b) in all other cases, at the measurement required by
paragraph 43, adjusted to defer the difference
between the fair value at initial recognition and the
transaction price. After initial recognition, the entity

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shall recognise that deferred difference as a gain or

loss only to the extent that it arises from a change in
a factor (including time) that market participants
would take into account when pricing the asset or
liability.

(13) Paragraph AG76A is amended as follows:

AG76A The subsequent measurement of the financial asset or

financial liability and the subsequent recognition of gains
and losses shall be consistent with the requirements of
this Standard. The application of paragraph AG76 may
result in no gain or loss being recognised on the initial
recognition of a financial asset or financial liability. In
such a case, FRS 139 requires that a gain or loss shall be
recognised after initial recognition only to the extent that
it arises from a change in a factor (including time) that
market participants would consider in setting a price.

(14) Paragraphs AG77–AG79 are deleted.

(15) Paragraphs AG80 and AG81 are amended as follows:

AG80 The fair value of investments in equity instruments that

do not have a quoted market price in an active market for
an identical instrument (ie a Level 1 input) and
derivatives that are linked to and must be settled by
delivery of such an unquoted equity instrument (see
paragraphs 46(c) and 47) is reliably measurable if (a) the
variability in the range of reasonable fair value estimates
measurements is not significant for that instrument or (b)
the probabilities of the various estimates within the range
can be reasonably assessed and used in estimating when
measuring fair value.

AG81 There are many situations in which the variability in the

range of reasonable fair value estimates measurements of
investments in equity instruments that do not have a
quoted market price in an active market for an identical
instrument (ie a Level 1 input) and derivatives that are
linked to and must be settled by delivery of such an
unquoted equity instrument (see paragraphs 46(c) and 47)
is likely not to be significant. Normally it is possible to

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estimate measure the fair value of a financial asset that an

entity has acquired from an outside party. However, if the
range of reasonable fair value estimates measurements is
significant and the probabilities of the various estimates
cannot be reasonably assessed, an entity is precluded
from measuring the instrument at fair value.

(16) The heading above paragraph AG82 and paragraph AG82 are
deleted.

(17) Paragraph AG96 is amended as follows:

AG96 An investment in an unquoted equity instrument that does

not have a quoted price in an active market for an
identical instrument (ie a Level 1 input) is not carried at
fair value because its fair value cannot otherwise be
reliably measured or a derivative that is linked to and
must be settled by delivery of such an unquoted equity
instrument (see paragraphs 46(c) and 47) cannot be
designated as a hedging instrument.

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Consequential Amendments to FRS 140

Investment Property
This Addendum sets out amendments to FRS 140 that are a consequence of
the issuance of FRS 13. An entity shall apply the amendments for annual
periods beginning on or after 1 January 2013. If an entity applies FRS 13
for an earlier period, it shall apply the amendments for that earlier period.
Amended paragraphs are shown with new text underlined and deleted text
struck through.

FRS 140 is amended as described below.

(1) Paragraph IN16 is amended as follows:

IN16 In exceptional cases, when an entity has adopted the fair

value model, there may be clear evidence when an entity
first acquires an investment property (or when an existing
property first becomes investment property following the
completion of construction or development, or after a
change in use) that its fair value will not be reliably
determinable measurable on a continuing basis. …

(2) Paragraphs 26, 29 and 32 are amended as follows:

26 … Guidance on determining measuring the fair value of a

property interest is set out for the fair value model in
paragraphs 33–35, 40, 41, 48, 50 and 52 and in FRS 13.
That guidance is also relevant to the determination
measurement of fair value when that value is used as cost
for initial recognition purposes.

29 The fair value of an asset for which comparable market

transactions do not exist is reliably measurable if (a) the
variability in the range of reasonable fair value estimates
measurements is not significant for that asset or (b) the
probabilities of the various estimates within the range can
be reasonably assessed and used in estimating when
measuring fair value. If the entity is able to determine
measure reliably the fair value of either the asset received
or the asset given up, then the fair value of the asset given
up is used to measure cost unless the fair value of the asset
received is more clearly evident.

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32 This Standard requires all entities to determine measure

the fair value of investment property, for the purpose of
either measurement (if the entity uses the fair value
model) or disclosure (if it uses the cost model). An entity
is encouraged, but not required, to determine measure the
fair value of investment property on the basis of a
valuation by an independent valuer who holds a
recognised and relevant professional qualification and has
recent experience in the location and category of the
investment property being valued.

(3) Paragraphs 36–39 are deleted.

(4) Paragraph 40 is amended as follows:

40 When measuring the The fair value of investment property

in accordance with FRS 13, an entity shall ensure that the
fair value reflects, among other things, rental income from
current leases and reasonable and supportable other
assumptions that represent what knowledgeable, willing
parties market participants would assume use when pricing
the investment property about rental income from future
leases in the light of under current market conditions. It also
reflects, on a similar basis, any cash outflows (including
rental payments and other outflows) that could be expected
in respect of the property. Some of those outflows are
reflected in the liability whereas others relate to outflows
that are not recognised in the financial statements until a
later date (eg periodic payments such as contingent rents).

(5) Paragraphs 42–47, 49 and 51 are deleted.

(6) Paragraph 48 is amended as follows:

48 In exceptional cases, there is clear evidence when an

entity first acquires an investment property (or when an
existing property first becomes investment property after
a change in use) that the variability in the range of
reasonable fair value estimates measurements will be so
great, and the probabilities of the various outcomes so
difficult to assess, that the usefulness of a single estimate
measure of fair value is negated. This may indicate that the

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fair value of the property will not be reliably determinable

measurable on a continuing basis (see paragraph 53).

(7) The heading above paragraph 53 and paragraphs 53 and 53B are
amended as follows:

Inability to determine measure fair value reliably

53 There is a rebuttable presumption that an entity can

reliably determine measure the fair value of an
investment property on a continuing basis. However,
in exceptional cases, there is clear evidence when an
entity first acquires an investment property (or when
an existing property first becomes investment
property after a change in use) that the fair value of
the investment property is not reliably determinable
measurable on a continuing basis. This arises when,
and only when, the market for comparable market
properties is inactive (eg there are few recent
transactions, price quotations are not current or
observed transaction prices indicate that the seller
was forced to sell) are infrequent and alternative
reliable estimates measurements of fair value (for
example, based on discounted cash flow projections)
are not available. If an entity determines that the fair
value of an investment property under construction is
not reliably determinable measurable but expects the
fair value of the property to be reliably determinable
measurable when construction is complete, it shall
measure that investment property under construction
at cost until either its fair value becomes reliably
determinable measurable or construction is completed
(whichever is earlier). If an entity determines that the
fair value of an investment property (other than an
investment property under construction) is not
reliably determinable measurable on a continuing
basis, the entity shall measure that investment
property using the cost model in FRS 116. The
residual value of the investment property shall be
assumed to be zero. The entity shall apply FRS 116
until disposal of the investment property.

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53B … An entity that has measured an item of investment

property under construction at fair value may not
conclude that the fair value of the completed investment
property cannot be determined measured reliably.

(8) Paragraph 75(d) is deleted.

(9) Paragraphs 78–80 are amended as follows:

78 In the exceptional cases referred to in paragraph 53,

when an entity measures investment property using
the cost model in FRS 116, the reconciliation required
by paragraph 76 shall disclose amounts relating to
that investment property separately from amounts
relating to other investment property. In addition, an
entity shall disclose:
…
(b) an explanation of why fair value cannot be
determined measured reliably;
…

79 In addition to the disclosures required by paragraph

75, an entity that applies the cost model in paragraph
56 shall disclose:
…
(e) the fair value of investment property. In the
exceptional cases described in paragraph 53,
when an entity cannot determine measure the
fair value of the investment property reliably, it
shall disclose:
…
(ii) an explanation of why fair value cannot be
determined measured reliably; and
…

80 An entity that has previously applied IAS 40 (2000)

and elects for the first time to classify and account for
some or all eligible property interests held under

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operating leases as investment property shall

recognise the effect of that election Under the fair
value model, an entity shall report the effect of
adopting this Standard on its effective date (or
earlier)1 as an adjustment to the opening balance of
retained earnings for the period in which the election
is first made. In addition:

(a) if the entity has previously disclosed publicly (in

financial statements or otherwise) the fair value
of those property interests its investments
property in earlier periods (determined
measured on a basis that satisfies the definition
of fair value in paragraph 5 and the guidance in
paragraphs 36–52 FRS 13), the entity is
encouraged, but not required:
…

(10) Paragraph 85B is amended as follows:

85B … An entity is permitted to apply the amendments to

investment property under construction from any date
before 1 January 2010 provided that the fair values of
investment properties under construction were
determined measured at those dates. …

(11) Paragraph 85C is added as follows:

85C FRS 13, issued in November 2011, amended the definition

of fair value in paragraph 5, amended paragraphs 26, 29,
32, 40, 48, 53, 53B, 78–80 and 85B and deleted paragraphs
36–39, 42–47, 49, 51 and 75(d). An entity shall apply those
amendments when it applies FRS 13.

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Consequential Amendments to MASB ED 50

Agriculture
This Addendum sets out amendments to MASB ED 50 that are a
consequence of the issuance of FRS 13. Amended paragraphs are shown
with new text underlined and deleted text struck through.

MASB ED 50 is amended as described below.

(1) In the rubric ‘paragraphs 1–60’ is amended to ‘paragraphs 1–61’.

(2) Paragraph IN3 is amended as follows:

IN3 There is a presumption that fair value can be measured

reliably for a biological asset. However, that presumption
can be rebutted only on initial recognition for a biological
asset for which quoted market-determined prices or
values are not available and for which alternative
estimates of fair value measurements are determined to
be clearly unreliable. …

(3) Paragraphs 8, 15 and 16 are amended as follows:

8 The following terms are used in this Standard with the

meanings specified:
An active market is a market where all the following
conditions exist:
(a) the items traded within the market are
homogeneous;
(b) willing buyers and sellers can normally be found
at any time; and
(c) prices are available to the public.
...
Fair value is the amount for which an asset could be
exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length
transaction price that would be received to sell an
asset or paid to transfer a liability in an orderly
transaction between market participants at the

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measurement date. (See FRS 13 Fair Value

Measurement.)

15 The determination of fair value measurement of for a

biological asset or agricultural produce may be facilitated
by grouping biological assets or agricultural produce
according to significant attributes; for example, by age or
quality. …

16 Entities often enter into contracts to sell their biological

assets or agricultural produce at a future date. Contract
prices are not necessarily relevant in determining
measuring fair value, because fair value reflects the current
market conditions in which a willing buyer and seller
market participant buyers and sellers would enter into a
transaction. …

(4) Paragraphs 9, 17–21 and 23 are deleted.

(5) Paragraphs 25 and 30 are amended as follows:

25 … An entity may use information regarding the combined

assets to determine measure the fair value for of the
biological assets. …

30 There is a presumption that fair value can be

measured reliably for a biological asset. However, that
presumption can be rebutted only on initial
recognition for a biological asset for which quoted
market-determined prices or values are not available
and for which alternative estimates of fair value
measurements are determined to be clearly unreliable.
…

(6) Paragraphs 47 and 48 are deleted.

(7) Paragraph 61 is added as follows:

61 FRS 13, issued in November 2011, amended paragraphs

8, 15, 16, 25 and 30 and deleted paragraphs 9, 17–21, 23,
47 and 48. An entity shall apply those amendments when
it applies FRS 13.

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Consequential Amendments to IC Interpretation 2

Members’ Shares in Co-operative Entities and Similar
Instruments
This Addendum sets out amendments to IC Interpretation 2 that are a
consequence of the issuance of FRS 13. An entity shall apply the
amendments for annual periods beginning on or after 1 January 2013. If an
entity applies FRS 13 for an earlier period, it shall apply the amendments
for that earlier period. Amended paragraphs are shown with new text
underlined and deleted text struck through.

IC Interpretation 2 is amended as described below.

(1) In the rubric, ‘paragraphs 1–14A’ is amended to ‘paragraphs 1–16’.

(2) Below the heading ‘References’ a reference to FRS 13 Fair Value

Measurement is added.

(3) Paragraph 16 is added as follows:

16 FRS 13, issued in November 2011, amended paragraph

A8. An entity shall apply that amendment when it applies
FRS 13.

(4) In the Appendix paragraph A8 is amended as follows:

A8 Members’ shares in excess of the prohibition against

redemption are financial liabilities. The co-operative
entity measures this financial liability at fair value at
initial recognition. Because these shares are redeemable
on demand, the co-operative entity determines measures
the fair value of such financial liabilities as required by
paragraph 49 of FRS 139 47 of FRS 13, which states:
‘The fair value of a financial liability with a demand
feature (eg a demand deposit) is not less than the amount
payable on demand …’ Accordingly, the co-operative
entity classifies as financial liabilities the maximum
amount payable on demand under the redemption
provisions.

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Consequential Amendments to IC Interpretation 4

Determining whether an Arrangement contains a Lease
This Addendum sets out amendments to IC Interpretation 4 that are a
consequence of the issuance of FRS 13. An entity shall apply the
amendments for annual periods beginning on or after 1 January 2013. If an
entity applies FRS 13 for an earlier period, it shall apply the amendments
for that earlier period. Amended paragraphs are shown with new text
underlined and deleted text struck through.

IC Interpretation 4 is amended as described below.

(1) Below the heading ‘References’ a reference to FRS 13 Fair Value

Measurement is added.

(2) In paragraph 15(a) ‘fair value’ is footnoted as follows:

*
FRS 117 uses the term ‘fair value’ in a way that differs in
some respects from the definition of fair value in FRS 13.
Therefore, when applying FRS 117 an entity measures fair
value in accordance with FRS 117, not FRS 13.

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Consequential Amendments to IC Interpretation 13

Customer Loyalty Programmes
This Addendum sets out amendments to IC Interpretation 13 that are a
consequence of the issuance of FRS 13. An entity shall apply the
amendments for annual periods beginning on or after 1 January 2013. If an
entity applies FRS 13 for an earlier period, it shall apply the amendments
for that earlier period. Amended paragraphs are shown with new text
underlined and deleted text struck through.

IC Interpretation 13 is amended as described below.

(1) Below the heading ‘References’ a reference to FRS 13 Fair Value

Measurement is added.

(2) Paragraph 6 is amended as follows:

6 The consideration allocated to the award credits shall be

measured by reference to their fair value, ie the amount
for which the award credits could be sold separately.

(3) Paragraph 10B is added as follows:

10B FRS 13, issued in November 2011, amended paragraphs 6

and AG1–AG3. An entity shall apply those amendments
when it applies FRS 13.

(4) In the Application Guidance paragraphs AG1–AG3 are amended

as follows:

AG1 Paragraph 6 of the consensus requires the consideration

allocated to award credits to be measured by reference to
their fair value, ie the amount for which the award credits
could be sold separately. If the fair value there is not
directly observable a quoted market price for an identical
award credit, it fair value must be estimated measured
using another valuation technique.

AG2 An entity may estimate measure the fair value of award

credits by reference to the fair value of the awards for
which they could be redeemed. The fair value of the
award credits takes into account, as appropriate:

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(a) the amount of the discounts or incentives that would

otherwise be offered to customers who have not
earned award credits from an initial sale; and
(b) the proportion of award credits that are not expected
to be redeemed by customers. ; and
(c) non-performance risk.
If customers can choose from a range of different awards,
the fair value of the award credits will reflects the fair
values of the range of available awards, weighted in
proportion to the frequency with which each award is
expected to be selected.

AG3 In some circumstances, other estimation valuation

techniques may be available used. For example, if a third
party will supply the awards and the entity pays the third
party for each award credit it grants, it could estimate
measure the fair value of the award credits by reference
to the amount it pays the third party, adding a reasonable
profit margin. Judgement is required to select and apply
the estimation valuation technique that satisfies the
requirements of paragraph 6 of the consensus and is most
appropriate in the circumstances.

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Consequential Amendments to IC Interpretation 17

Distributions of Non-cash Assets to Owners
This Addendum sets out amendments to IC Interpretation 17 that are a
consequence of the issuance of FRS 13. An entity shall apply the
amendments for annual periods beginning on or after 1 January 2013. If an
entity applies FRS 13 for an earlier period, it shall apply the amendments
for that earlier period. Amended paragraphs are shown with new text
underlined and deleted text struck through.

IC Interpretation 17 is amended as described below.

(1) In the rubric ‘paragraphs 1–19’ is amended to ‘paragraphs 1–20’.

(2) Below the heading ‘References’ a reference to FRS 13 Fair Value

Measurement is added.

(3) Paragraph 17 is amended as follows:

17 If, after the end of a reporting period but before the

financial statements are authorised for issue, an entity
declares a dividend to distribute a non-cash asset, it shall
disclose:
…
(c) the estimated fair value of the asset to be distributed
as of the end of the reporting period, if it is different
from its carrying amount, and the information about
the method(s) used to determine measure that fair
value required by FRS 7 paragraph 27–27B(a)
paragraphs 93(b), (d), (g) and (i) and 99 of FRS 13.

(4) Paragraph 20 is added as follows:

20 FRS 13, issued in November 2011, amended paragraph

17. An entity shall apply that amendment when it applies
FRS 13.

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IFRS Foundation
 Addendum

Consequential Amendments to IC Interpretation 19

Extinguishing Financial Liabilities with Equity Instruments
This Addendum sets out amendments to IC Interpretation 19 that are a
consequence of the issuance of FRS 13. An entity shall apply the
amendments for annual periods beginning on or after 1 January 2013. If an
entity applies FRS 13 for an earlier period, it shall apply the amendments
for that earlier period. Amended paragraphs are shown with new text
underlined and deleted text struck through.

IC Interpretation 19 is amended as described below.

(1) In the rubric ‘paragraphs 1–14’ is amended to ‘paragraphs 1–15’.

(2) Below the heading ‘References’ a reference to FRS 13 Fair Value

Measurement is added.

(3) Paragraph 7 is amended as follows:

7 If the fair value of the equity instruments issued cannot be

reliably measured then the equity instruments shall be
measured to reflect the fair value of the financial liability
extinguished. In measuring the fair value of a financial
liability extinguished that includes a demand feature (eg a
demand deposit), paragraph 49 47 of FRS 139 FRS 13 is
not applied.

(4) Paragraph 15 is added as follows:

15 FRS 13, issued in November 2011, amended paragraph 7.

An entity shall apply that amendment when it applies
FRS 13.

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IFRS Foundation