Here are some basics to help you refresh yourself with GPFR in Xero
IFRS 13 explains that a fair value measurement requires an entity to determine the following:
- the particular asset or liability being measured
- 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
- the market in which an orderly transaction would take place for the asset or liability, and
- 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.
Tip - be careful with related parties! IAS 24 Related Party Disclosures
Step 1 - what is the particular asset being measured?
Where is it, does it need more costs to be ready for sale, what condition, any restrictions on it, part of a group of assets. The premise is that market participants will be taking these into account.
Step 2 - what is the appropriate measurement valuation premise? the buyer would consider the economic benefits they can generate.
Step 3 - what is the most principal or advantageous market for the asset? the principal market is the largest market.
Step 4 - what is the appropriate valuation technique?
Three approaches, market approach, cost approach and income approach.