IND AS 113, FAIR VALUE MEASUREMENT (Summary)

            

1. Objective:

This Ind AS defines Fair Values, sets out in a single Ind AS a framework for measuring FV and requires disclosures about fair value measurements.

2. Scope:

This Ind AS applies when another Ind AS requires or permits FV measurements or disclosures about FV measurements.

  

It is not apply to:

a) Share-based payment transactions (Ind As-102 Applies)

b)Leasing transactions (Ind As-17 Applies)

3. Key Definition:

• 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.

Orderly transaction means a transaction which is not a forced one.

Note: It is a market-based measurement and not an entity-specific measurement hence for some cases the market transaction might not be available. 

• Entity-specific measurement Value-  It is also known as a value in use or value to the entity. It means the amount at which market will value Future cash flows expected by the entity either through use or through the realization of same.

Note: 

The value in use or Realisation value whichever is higher shall be the fair value as per entity-specific measure.

4. Factors affecting measurements:

FV measurement requires an entity to determine:

• Particular asset or liability

The specific characteristics of Assets And liabilities should be correctly incorporated to determine the true value:

Examples:

1. The condition & Location of Assets

2. Restriction, if any on the sale or Use of Assets.

• The Transaction

This Ind As assumes that the assets & liabilities exchanged in an orderly transaction between the market participants under the current market condition on the measurement date.

The transaction done in Principal market will get preferred. (Principal market is a market of greater value & level of activity in the market) 

• Market participants.

Market participants are the buyers & sellers in the principal market for the assets or liabilities that are:

•  INDEPENDENT: The transaction parties should not related party as defined in Ind AS-24. however, it does not preclude the related party transactions if there is evidence that it is done on the Market Terms.

• KNOWLEDGEABLE: The transaction counterparties should have a reasonable understanding of the assets & liabilities transacted. Information might be obtained by the due diligence efforts that are usual & customary.

• Able to transact in Assets & Liability & their Willingness to do so.

• Price: The price taken for consideration is to be Exit price (the price that would be received for the sale of assets & Actually paid for the settlement of liability) not the "Entry Price:" (Historical price).

Note:

Conceptually Exit price based on current Expectation about the sale or transfer price between market participants.

5. Valuation technique(s):

Three widely used valuation techniques are:

• Market approach– Uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. A business)

• Cost approach– Reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost)

• Income approach– Converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts.

6. Fair value hierarchy:

The hierarchy categorizes the inputs used in valuation techniques into three levels. The highest priority will be given to the level-1 input & lowest priority to the level-3 Inputs.

• Level 1 Inputs:

These are quoted prices (Unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

• Level 2 inputs:

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

Example:
Quoted prices for the Similar/Identical Assets & Liabilities in  Active market.

• Level 3 inputs:

These are unobservable inputs for the asset or liability. It is used only when observable inputs are not available.

7. Disclosures: 

Disclose information that helps users of FS assess both of the following:

·         For assets and liabilities that are measured at FV on a recurring or non-recurring basis in the BS after initial recognition, the valuation techniques and inputs used to develop those measurements.

·         For FV measurements using significant unobservable inputs (level 3), the effect of the measurements on P/L or OCI for the

8.Comparison with IFRS-13:

There is no Difference in Ind AS-13 & IFRS-13, Fair value measurements.

#For detailed reference: http://mca.gov.in/Ministry/pdf/INDAS113.pdf