Fair Value Measurement
(a)
defines fair value ;
(b)
sets out in a single Ind AS a framework for measuring fair value; and
(c)
requires disclosures about fair value measurements.
(a)
share-based payment transactions within the scope of Ind AS 102, Share-based Payment ;
(b)
1 leasing transactions accounted for in accordance with I nd AS 116, Leases ; and
(c)
measurements that have some similarities to fair value but are not fair value, such as net realisable value in Ind AS 2, Inventories , or value in use in Ind AS 36, Impairment of Assets .
(a)
plan assets measured at fair value in accordance with Ind AS 19, Employee Benefits ;
(b)
[Refer Appendix 1 ]; and
(c)
assets for which recoverable amount is fair value less costs of disposal in accordance with Ind AS 36.
(a)
the condition and location of the asset; and
(b)
restrictions, if any, on the sale or use of the asset.
(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).
(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.
(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.
(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.
(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 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.
(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.
(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 ).
(ii)
a market approach (eg using quoted prices for similar liabilities or equity instruments held by other parties as assets; see paragraphs B5 - B7 ).
(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.
(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.
(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.
(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 Ind AS 24, Related Party Disclosures ; and
(c)
is required or has elected to measure those financial assets and financial liabilities at fair value in the balance sheet at the end of each reporting period.
(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.
(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.
(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.
(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.
(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 .
(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.
(a)
for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the balance sheet 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.
(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.
(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 Ind ASs require or permit in the balance sheet at the end of each reporting period. Non-recurring fair value measurements of assets or liabilities are those that other Ind ASs require or permit in the balance sheet in particular circumstances (eg when an entity measures an asset held for sale at fair value less costs to sell in accordance with Ind AS 105, 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 (eg a market multiple or future cash flows) 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 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).
(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 93(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.
(a)
the nature, characteristics and risks of the asset or liability; and
(b)
the level of the fair value hierarchy within which the fair value measurement is categorised.
(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.
(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.
(a)
They are independent of each other, ie they are not related parties as defined in Ind AS 24, 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.
(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 Ind AS 105).
(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.
(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.
(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).
(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 Ind AS, 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.
(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.
(a)
an estimate of future cash flows for the asset or liability being measured.
(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.
(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; 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.
(a)
The discount rate adjustment technique (see paragraphs B18-B22) uses a risk-adjusted discount rate and contractual, promised or most likely cash flows.
(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.
(a)
Asset B is a contractual right to receive Rs. 1,200 in one year and has a market price of Rs. 1,083. Thus, the implied annual rate of return (ie a one-year market rate of return) is 10.8 percent [(Rs. 1,200/Rs. 1,083) – 1].
(b)
Asset C is a contractual right to receive Rs. 700 in two years and has a market price of Rs. 566. Thus, the implied annual rate of return (ie a two-year market rate of return) is 11.2 per cent [(Rs. 700/Rs. 566)^0.5 –1].
(c)
All three assets are comparable with respect to risk (ie dispersion of possible pay-offs and credit).
(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.)
(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 Rs. 22) could be determined using the systematic risk premium of 3 per cent (Rs. 780 - [Rs. 780 x (1.05/1.08)]), which results in risk-adjusted expected cash flows of Rs. 758 (Rs. 780 - Rs. 22). The Rs. 758 is the certainty equivalent of Rs. 780 and is discounted at the risk-free interest rate (5 per cent). The present value (ie the fair value) of the asset is Rs. 722 (Rs. 758/1.05).
(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 Rs. 722 (Rs. 780/1.08).
(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 ).
(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).
(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 National 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.
(a)
Receive-fixed , pay-variable interest rate swap based on the Mumbai Interbank Offered Rate (MIBOR) swap rate. A Level 2 input would be the MIBOR 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.
(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.
(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 fulfill 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.
(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).
(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).
(e)
The transaction price is an outlier when compared with other recent transactions for the same or a similar asset or liability.
(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.
Notes, amendments & references (6)
# This Ind AS was notified vide G.S.R. 111(E) dated 16th February, 2015 and was amended vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.
1 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.
2 Substituted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.
* Refer Appendix 1
3 Substituted vide Notification No. G.S.R. 273(E) dated 30th March, 2019.
4 Inserted vide Notification No. G.S.R. 273(E) dated 30 th March, 2019.