IFRS 13 Fair Value Measurement |

IFRS 13 Relief from royalty method

IFRS 13 Relief from royalty methodOne method to determine the market value of Intellectual Property assets like patents, trademarks, and copyrights is to use IFRS 13 Relief from royalty method (also known as Royalty avoidance approach or Royalty Relief approach). This approach determines the value of Intellectual Property assets by estimating what it would cost the business if it had to purchase the Intellectual Property (IP) it uses from an outsider. Other valuation methods are provide here.

This approach requires the valuator to

  1. project future sales of the products that use the technology,
  2. determine an appropriate reasonable royalty rate, and
  3. determine either a present value factor or an appropriate discount rate.

The result is the present value of the Intellectual Property to the company. Read more

12-Month Expected Credit Losses

12-month expected credit loss is the portion of the lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date. To get background on the impairment model introduced in IFRS 9 see ‘Impairment of financial assets‘.

Initial recognition 12-Month Expected Credit Losses

At initial recognition of a financial asset, an entity recognises, as a standard approach, a loss allowance equal to 12-month expected credit losses. The actual loss does not need to take place within the 12 month period; it is the occurrence of the default event that ultimately results in that loss. An exception is purchased or originated … Read more

Argentina’s sovereign debt overhaul intentions

July – August 2019 – Argentina’s assets tumbled in the wake of President Mauricio Macri suffering an unexpected bruising primary election loss this month at the hands of populist-leaning Peronist Alberto Fernandez, with the central bank forced to burn through its reserves to prop up an ailing peso.

Unable to roll over much of its short-term local debt, Treasury Minister Hernan Lacunza on Wednesday announced plans to extend maturities of local law bonds held by institutional investors and stated intentions to do so on international debt and dues owed to the International Monetary Fund.

Some $7 billion of short-term debt, $50 billion long-term debt and $44 billion of IMF debt are earmarked for an overhaul, according to calculations … Read more

Value a business in emerging markets

The emerging economies in Asia and South America continue experience strong growth over the coming decades. Over the long term, many analysts see China and India moving into the ranks of the world’s largest economies. This sometimes spectacular economic development will produce many situations requiring sound analysis and valuation. In the rising number of privatizations, joint ventures, mergers, and acquisitions, local financial parties such as banks and capital markets will display growing sophistication. Institutional investors will also continue to diversify their portfolios, adding international holdings in emerging-market stocks.

Here the focus is on the specific issues that arise in financial analysis and valuation of businesses in emerging markets. Valuation is typically more difficult in these environments because of various risks … Read more

The different IFRS valuation premises are?

The different valuation premises available in IFRS and how they are used are:

Stand-alone valuation premise

A basis used to determine the fair value of an asset that provides maximum value to market participants principally on a stand-alone basis.

In combination value

A basis used to determine the fair value of an asset that provides maximum value to market participants principally through its use in combination with other assets and liabilities as a group (as installed or otherwise configured for the highest and best use valuation premise).

The highest and best use valuation premise establishes the valuation premise used to measure the fair value of that asset.

Difference between the current use of an asset and the highest and best … Read more

The modified historical cost convention

IFRS requires financial statements to be prepared on a modified historical cost basis, with a growing emphasis on fair value. ‘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 – i.e. an exit price. [IFRS 13 9]

The carrying amounts of the following assets and liabilities are based on fair value measurements subsequent to initial recognition.

  • Derivatives, financial assets, and financial liabilities classified as held-for-trading or designated as at fair value through profit or loss, and financial assets classified as available-for-sale are measured at fair value.
  • Biological assets are measured at fair value less costs to sell.
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