RESEARCH ASSIGNMENT Length: 1500 words Examine the requirements for measuring assets at fair value in the following accounting standards: IAS3/AASB 3 Business Combinations IAS116/AASB116 Property,...

Introduction:
As per AASB 113, ‘Fair Value Measurement’, fair value is defines as the price or the amount that a seller
would be receive on selling the asset or an equivalent amount of liability settled in such a transaction
etween market participants at the measurement date (Para 9, AASB 13).
In the assignment, application of fair value in accordance with different AASB is considered and its effect
on financial statement.
Part a: Requirements for measuring assets at fair value in the following accounting standards
IAS3/AASB 3 Business Combinations
As per AASB 3, para 4, the entity shall apply acquisition method while accounting for business
combination. By applying, the acquisition method during the business combination, the acquirer is
equired to ensure that the assets acquired, which are identifiable or the liabilities assumed is measured
at fair value as of the date of acquisition (Para 18, AASB 3).
In following cases, the standard provides specific guidance for measuring the value based on fair value
principles
 Those assets that have uncertain cash flows:
In case of assets with uncertain cash flows, namely receivables balances, which being an
identifiable asset at the date of acquisition, and accordingly measured at fair value, the acquirer
is not required to recognize valuation allowance in separate account. As there is likelihood that
such account balance may deem to be uncollectible post business combination transaction.
(Para 41, AASB 3).
 Assets which were taken on operating leases, for which the acquiree is the lessor:
In case where the acquiree has entered into operating lease agreement for building, machinery
or patent, it is important for the acquirer to analyze the terms of agreement and determine
whether such terms are favorable or unfavorable. If the lease terms are favorable then acquirer
shall recognize an intangible asset, else an intangible liability is recorded in books (Para B29,
AASB 3). However, no such assets is recognized if the terms are either favorable or unfavorable
with respect to market terms (Para B42, AASB 3)
 Assets not used or used in different manner compare to market participants:
Even if the assets acquired in course of business combination is intended by the acquirer to be
used for purpose different from that of the acquire or any other market participant, the acquirer
must recognize the asset at fair value computed based on its use by other market participants
(Para B43, AASB 3).
 Non-controlling interest in an acquire:
The non-controlling interest in the acquiree company is measured at fair value at the date of
acquisition. The acquirer can measure such fair value based of active market prices of shares not
held by it, if the shares of the acquiree are publicly traded. In other cases, the acquirer may
apply valuation techniques to measure fair value of non-controlling interest (Para B44, AASB 3).
IAS116/AASB116 Property, plant and equipment
In case of this standard, the principles of fair value are applied when an asset is exchanged for another
asset or the entity follows revaluation model for recording the asset value.
 Model:
The standard provides an option to the entity to either continue to follow cost model or adopt
evaluation model to recognize the asset value at...