The primary purpose under Ind AS 113 is to increase the consistency and comparability of fair value measurement used in financial reporting and to provide a common framework whenever an Ind AS requires or permits fair value measurement irrespective of the type of asset, liability or the entity that holds the same. The basic objective of fair value measurement is to estimate the price at which an orderly transaction would take place between market participants under market conditions that exist at the measurement date. Let us now examine the key requirements of Ind AS 113 as well as each of the above Ind AS’s insofar as the fair value requirements are concerned.
Key Requirements of Ind AS 113:Ind AS 113 addresses how to measure fair value but does not stipulate when fair value needs to be used which is determined by the other Ind ASs as indicated earlier. Further, Ind AS 113 applies to all fair value disclosures that are required or permitted by Ind AS, except for the following:
a)Share based payment transactions under
Ind AS 102;b)Leases under
Ind AS 17; and
c)Measures that are similar to but are not fair value e.g. net realisable value under Ind AS 2,
Inventories, value in use under
Ind AS 36, Impairment.
The disclosures required by this Standard are not required for the following:
a)Plan assets measured at fair value in accordance with
Ind AS 19,
Employee Benefits; and
b)Assets for which recoverable amount is fair value less costs of disposal in accordance with
Ind AS 36,
Impairment of Assets.
The fair value measurement framework described in this Standard applies to both initial and subsequent measurement, if fair value is required or permitted by other Ind ASs.
The basic objectives of Ind AS 113 are as under:
-To define the concept of fair value.
-To set out the framework for measuring the fair value.
-To lay down the disclosure requirements on fair value measurements.
Let us now proceed to briefly examine each of the above aspects.
Meaning of Fair Value:IndAS 113 defines fair value as “
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”.
The basic premise which governs the determination and use of fair value is that it is always determined on a
market based approach based on
observable market prices or in its absence based on other appropriate valuation techniques which
maximise the use of relevant observable inputs and
minimise the use of unobservable inputs and is not entity specific. In other words, it means that the fair value has to be determined in accordance with use of the asset by market participants. A common
example of such a situation is in the FMCG or Pharma industry when the acquirer acquires the business of a competitor with the objective of eliminating competing brands to promote his own brand. In such cases a fair value is attributed to the competing brand on the basis of its
highest and best use (discussed later) by market participants, which principle is also laid down under Ind AS 103.
Before proceeding further, it is important to understand the concept of the term price in the context of fair value and also who are regarded as market participants since fair value is always to be determined on a market based approach.
The Price:In keeping with its market based criteria as discussed earlier, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the
principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.Thus, under normal circumstances, the fair value is the exit price.
However, when an asset is acquired or a liability is assumed in an
exchange transaction for that asset or liability, the
transaction price is the price paid to acquire the asset or received to assume the liability (referred to as an
entry price). An
example could be a company which has an old truck having a book value of Rs.2,50,000 which acquires a boat in exchange whose transaction price assumed on the basis of similar transactions on an arm’s length basis is Rs. 10,00,000 which could be construed as its fair value. Accordingly the boat will be accounted for at Rs.10,00,000 and a loss of Rs.7,50,000 (10,00,000-2,50,000) would be simultaneously recorded.
In most cases, the
transaction price will equal the fair value (e.g. when on the transaction date the transaction to buy an asset takes place in the market in which the asset would be sold).Though in practice there may not be various situations where the transaction price may not represent the fair value, Ind AS-113 does recognise that the
transaction price might not represent the fair value of an asset or a liability at initial recognition if any of the following conditions exist: a)The transaction is between related parties, unless it can be demonstrated that the transactions are on an arm’s length basis. Keeping in mind the requirements under the Companies Act, 2013 most related party transactions in practice would pass the arm’s length test.
b)The transaction takes place under duress or the seller is forced to accept the price in the transaction e.g. if the seller is experiencing financial difficulty. Similarly in the recent past the insolvency proceedings under the Bankruptcy Code may force the sellers to accept certain prices arrived at through the resolution process whichmay not always be fair.
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 e.g. if the asset or liability measured at fair value is only one of the elements in the transaction in a business combination or 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) e.g. 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.
Market Participants:They represent buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
a)They are independent of each other and are not related parties as defined in Ind AS-24.
b)They are knowledgeable and have a reasonable understanding about the asset or liability and the transaction using all available information that might be obtained through due diligence efforts that are usual and customary.
c)They are able and willing to enter into a transaction for the asset or liability.
Measurement Date:
It represents a clear and specific date for a particular transaction and the fair value needs to be computed as of that date rather than for a period.
After having understood the meaning of certain critical terms let us now proceed to gain some insights into the overall framework for measuring the fair value as laid down in Ind AS 113
Framework for Measuring the Fair Value:
The fair value measurement framework as laid down under Ind AS 113 broadly requires a determination of the following:
a.The asset or liability being measured.
b.The highest and best use for a non-financial asset.
c.The principal or most advantageous market.
d.The fair value hierarchy.
e.The valuation techniques to be adopted (including the inputs to be used).
a.The Asset or Liability being measured:
The asset or liability being measured at fair value could be either of the following:
a)A standalone asset or liability e.g. a financial instrument or a non-financial asset like land or equipment; or
b)A group of assets or liabilities e.g. a cash generating unit or valuation during the course of a business combination or restructuring transaction.
In either of the above situations, for the valuation under accounting depends on its unit of account, which is the level at which it is aggregated or disaggregated for accounting purposes.
When measuring fair value an entity shall take into account the following characteristics of the asset or liability which market participants would normally take into account when pricing the asset or liability at the measurement date.:
a) the condition and location of the asset (an example thereof could be a Company which owns a licence only for selling a product in India, the value of the intangible asset represented by the licence cannot be measured by assuming or factoring in the cash flows from the sale of the products outside India); and
b)restrictions, if any, on the sale or use of the asset (an example could be a Company which has a land parcel that can be used only for industrial purposes in which case, the value of the land needs to be measured based on the current conditions as well as keeping in mind the restrictions on use).
b.Highest and Best Use for a Non-Financial Asset:
As we have discussed above, to arrive at the fair value of an asset or liability, its value needs to be taken from the perspectives of the market participants in an orderly transaction for sale or exchange of an asset. However, many non-financial assets may not always be liquid enough nor have specific contractual terms which the financial assets would normally have.
Accordingly, the fair value measurement of a non-financial asset depends upon the following two factors:
a)The ability of the market participants to generate economic benefit by using the asset in its highest and best use. This is also referred to as the in exchange valuation premise. In such cases, the asset would provide maximum value to market participants primarily on a standalone basis. Thus, the fair value of the asset would be the price which would be received in a current transaction to sell the asset to market participants who would use the asset on a standalone basis. An example could be the estimated amount at which a particular piece and parcel of land adjacent to an existing factory (for a proposed expansion) could be exchanged on the date of valuation between a willing buyer and a willing seller wherein both the parties have acted knowledgeably, prudently and without compulsion.
b)The sale value to another market participant who will use the asset to its highest and best use. This is also referred to as the in use valuation premise. In such cases, it is presumed that an entity’s current use of a non-financial asset is its highest and best use unless market or other factors suggest that a different use by market participants would maximise the value of the non-financial asset. An example could be an FMCG company which acquires another similar entity but intends to discontinue the brands acquired pursuant to the acquisition. In such a situation, the fair value of the brands would nevertheless be computed assuming it from a market participant’s perspective even if the acquirer intends to kill the brand(s).
Keeping this in mind, the Standard also specifically provides that the fair value of non-financial assets should be measured based on its highest and best use.
The highest and best use refers to the use of an asset by market participants that would maximise the value of the asset or group of assets and liabilities by taking into account the use of the asset, considering the following factors:
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Factors
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Examples
of Evaluation Criteria
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Physical
Possibility
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– Size or location of the property
— Technical feasibility for applying the
asset for producing different goods
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Legal
Permissibility
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– Legal restrictions like zoning
restrictions
— Entry restriction sin certain markets
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Financial
Feasibility
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– Generation of
adequate cash flows to provide the desired return on investments to market participants to
put the asset to use
— The costs of converting the asset for
the desired use from a marketparticipants perspective
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c.The Principal or Most Advantageous Market:
The basic premise under Ind AS 113 is that the fair value needs to be determined based on orderly transactions that would take place in the principal or in its absence the most advantageous market as defined earlier. Identifying these markets is one of the key considerations in the entire valuation process.
Ind AS-113 provides that an entity need not undertake an exhaustive search of all possible markets to identify the principal market or, in the absence thereof, the most advantageous market, but it shall take into account all information that is reasonably available. In the absence of evidence to the contrary, the market in which the entity would normally enter into a transaction to sell the asset or to transfer the liability is presumed to be the principal market or, in the absence of a principal market, the most advantageous market.
Whilst it is easier to determine the principal market based on the observed volume or level of activity. Example: a stock exchange having more frequent trading or volume for a listed company’s equity shares, to determine the most advantageous market, in other casesone needs to take into account the transaction costs and transportation costs in the manner discussed below.
Transaction Costs and Transportation Costs:
Ind AS-113 defines transaction costs as those costs which are incurred to sell an asset or transfer a liability in the principal (or most advantageous) market (discussed earlier) for the asset or liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet both of the following criteria:
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).
Ind AS-113 defines transportation costs as those costs that would be incurred to transport an asset from its current location to its principal (or most advantageous) market.
As per para 25 of Ind AS-113, the price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs since they are not a characteristic of an asset or a liability but they are specific to a transaction and will differ depending on how an entity enters into a transaction for the asset or liability. Transaction costs shall be accounted for in accordance with other Ind ASs. Further, as per para 26 of Ind AS-113, transaction costs do not include transport costs. If location is a characteristic of the asset (e.g. for a commodity), the price in the principal (or most advantageous) market shall be adjusted for the costs, if any, that would be incurred to transport the asset from its current location to that market.
However, as we have seen earlier, both the transaction and transportation costs should be taken into account to determine the most advantageous market for an asset or a liability.
The above is explained with the help of an example to determine the most advantageous market based on the transaction and transportation cost.
Determination of the Most Advantageous Market – Facts of the case:
An entity holds an asset which can be sold in two markets situated in different locations with different prices. It enters into transactions in both the markets since there is no principal market for the asset. Certain other details are tabulated below:
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Amount in Rs.
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Market
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Price
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Transport Cost
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Transaction Cost
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Net Price
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X
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950
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100
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100
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750
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Y
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880
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75
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40
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765
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Determine the most advantageous market.
Solution:
Based on the net prices, the entity would maximise the net amount in market Y (Rs. 765) and hence it appears to be the most advantageous market.
However, on further analysis the fair value of market X and Y would be Rs. 850 and Rs. 805 after deducting the transportation cost as per the requirements of para 25 of Ind AS-113, discussed earlier, since location is a characteristic of the asset. However, even though the fair value of market X is greater, market Y remains most advantageous because of the overall greater net price. Accordingly, the fair value of the asset would be Rs. 805.
d.Fair Value Hierarchy:
The purpose of laying down a fair value hierarchy in the Standard is to increase consistency and comparability in the fair value measurements and disclosures. The basic premise of applying this hierarchy is to enable an entity to prioritise the observable inputs over those that are unobservable. Further, greater disclosures are mandated in respect of unobservable inputs adopted due to their inherent subjectivity.
The Standard establishes a fair value hierarchy that categorises into three levels, as discussed below, the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
Level 1 inputs:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date and provides the most reliable evidence of fair value.
Level 1 inputs will be available for many financial assets and financial liabilities, some of which might be exchanged in multiple active markets (e.g. on different exchanges). Accordingly, the emphasis within Level 1 is on determining both of the following:
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.
For example, if the equity shares are quoted on more than one exchange generally the price quoted on an exchange which has the maximum trading volume would be both the principal as well as the most advantageous market.
On the other hand, in respect of Government Securities, though they may be quoted, the market may not be very active or liquid and hence, the latest available quoted price may not be an appropriate level I input and may need to be adjusted.
Level 2 inputs:
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable (those inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability) for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 2 inputs include the following:
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.
Adjustments to Level 2 inputs will vary depending on the factors specific to the asset or liability, which include the following:
a)The condition or location of the asset;
b)The extent to which inputs relate to items which are comparable to the asset or liability; and
c)The volume and level of activity in the markets within which the inputs are observed.
An adjustment to a Level 2 input that is significant to the entire measurement might result in a fair value measurement categorized within Level 3 of the fair value hierarchy, if the adjustment uses significant unobservable inputs.
Some of the common examples of Level 2 inputs used in valuation are:
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)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.
c)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 (i.e. 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. Generally, the price that requires the least amount of subjective adjustments should be used for the fair value measurement.
d)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, e.g. multiples derived from prices in observed transactions involving comparable (i.e. similar) buildings in similar locations.
e)Cash-generating unit- A Level 2 input would be a valuation multiple (e.g. a multiple of earnings or revenue or a similar performance measure) derived from observable market data (EV/ EBITDA multiple) e.g. multiples derived from prices in observed transactions involving comparable (i.e. similar) businesses, taking into account operational, market, financial and non-financial factors
Level 3 inputs:
Level 3 inputs are unobservable inputs (those inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability) for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Accordingly, unobservable inputs shall reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.
An entity shall develop unobservable inputs using the best information available in the circumstances, which might include the entity’s own data. In developing unobservable inputs, an entity may begin with its own data, but it shall adjust those data if reasonably available information indicates that other market participants would use different data or there is something particular to the entity that is not available to other market participants (e.g. an entity-specific synergy). An entity need not undertake exhaustive efforts to obtain information about market participant assumptions. However, an entity shall take into account all information about market participant assumptions that is reasonably available. Unobservable inputs developed in the manner described above are considered market participant assumptions and meet the objective of a fair value measurement.
Some of the common examples of Level 3 inputs used in valuation are:
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, i.e. 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)Cash-generating unit – A Level 3 input would be a financial forecast (e.g. 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.
e.Valuation Techniques:
After having understood the broad principles underlying fair valuation, an entity would need to determine the valuation techniques which are appropriate in the circumstances and for which sufficient data are available to measure the fair value, whereby there is maximum use of observable inputs and minimum use of unobservable inputs, keeping in mind the overall objective of the valuation exercise to estimate the price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants under current market conditions.
There are three widely used valuation techniques which are prescribed in Ind AS 113 as under:
-Market approach
-Cost approach
-Income approach
Each of these are briefly analysed hereunder:
The Market Approach:
This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets, liabilities or group of assets or liabilities. The valuation techniques consistent with the market approach often use market multiples derived from a set of comparable assets, liabilities or business, as applicable. Multiples might be in ranges with a different multiple for each comparable. The selection of the appropriate multiple within the range requires judgement, considering qualitative and quantitative factors specific to the measurement. Some of the commonly used market multiples are EV/ EBIDTA, revenue or matrix pricing involving comparison with benchmark securities.
The Cost Approach:
This approach reflects the amount that would be required currently to replace the service capacity of the asset, which is often referred to as the current replacement cost. From the perspective of a market participant seller, the price that would be received for the asset is based on the cost to a market participant buyer to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence (covering amongst others, physical deterioration, technological changes and changes economic conditions like interest rates, currency fluctuations), since a market participant buyer would not pay more for an asset than the amount for which it could replace the service capacity of that asset. For this purpose, the term obsolescence is much broader than depreciation which is provided for financial reporting or tax purposes.
The Income Approach:
This approach converts the future amounts comprising of cash flows, income or expenses to a single current (discounted) amount. The fair value measure so arrived at reflects the current market expectations of such future amounts. The following are the commonly used valuation techniques under this approach:
?????Present value technique
?Option pricing models
?Multi-period excess earnings method
Whilst a detailed discussion on each of these techniques is beyond the scope of this article, some broad principles underlying the same are covered hereunder.
Present Value Technique:
The present value technique is the most commonly used technique and is the only technique for which guidance is provided in Ind AS 113. This technique links the future estimates or amounts (e.g. cash flows or values) to a present amount using a discount rate. A fair value measurement of an asset or a liability using a present value technique captures all the following elements from the perspective of market participants at the measurement date:
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 (i.e. a risk-free interest rate).
d)The price for bearing the uncertainty inherent in the cash flows (i.e.an illiquidity discount).
e)Any 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 (i.e. the obligor’s) own credit risk.
Option Pricing Models:
These incorporate present value techniques and reflect both the intrinsic and time value of money of an option contract which represents a contract through which a seller gives a buyer the right, but not the obligation, to buy or sell a specified number of shares or other securities or commodities or foreign currency at a predetermined price within a set time period.Options are derivatives, which means that their value is derived from the value of an underlying investment or commodity or foreign currency, amongst others.
A further detailed discussion on the various option pricing models is beyond the scope of this article since it involves use of various statistical and other models, often quite complex, which are determined by valuation specialists taking into account various sophisticated models and tools.
Multi Period Excess Earnings Method:
The fundamental principle underlying this method is to isolate the net earnings attributable to the asset being measured. It is generally used to measure the fair value of intangible assets. Under this method, the estimate of an intangible assets fair value starts with an estimate of the expected net income of the enterprise or the group of assets. The other assets in the group are referred to as the contributory assets, which contribute to the realisation of the intangible assets value. Once the underlying value is determined, the contributory charges or economic rents, which represent the charges for the use of the assets based on their respective fair values, are deducted from the total net after tax cash flows projected from the combined group to obtain the “excess earnings” attributable to the intangible asset.
Use of Multiple Valuation Techniques:
If multiple valuation techniques are used to measure the fair value, the results thereof should be evaluated considering the reasonableness of the range of values. In such cases, the fair value is the point within the range that is most representative of the fair value in the given scenario.
Changes in Valuation Techniques:
As a general rule, valuation techniques shall be applied consistently. However, a change in the valuation technique or application of multiple valuation techniques is appropriate if the change results in a measurement that is equally or more representative of the fair value in the circumstances. Some examples of such circumstances are as under:
a)New markets develop or market conditions change.
b)New information is available.
c)Information previously used is no longer available.
d)The valuation techniques improve.
Inputs to Valuation Techniques:
General Principles:
As discussed above, valuation techniques used to measure fair value shall maximise the use of relevant observable inputs and minimise the use of unobservable inputs.
Inputs selected for fair value measurement shall be consistent with the characteristics of the asset or liability that market participants would take into account in a transaction for the asset or liability. In some cases those characteristics result in the application of an adjustment, such as a premium or discount (e.g. a control premium or non-controlling interest discount). When these characteristics reflect controlling shareholding, the share price would attract a premium and when it reflects a non-controlling interest, the share price would attract a discount.
In all cases, if there is a quoted price in an active market for an asset or a liability, an entity shall use that price without adjustment when measuring fair value, except in the following circumstances as specified in para 79 of Ind AS 113:
a)when an entity holds a large number of similar (but not identical) assets or liabilities (e.g. 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. In such cases, as a practical expedient, an entity may measure fair value using an alternative pricing method that does not rely exclusively on quoted prices (e.g. matrix pricing). However, the use of an alternative pricing method would result 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. For example, if 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.
Inputs based on Bid and Ask Prices:
If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorised within the fair value hierarchy as discussed above. The use of bid prices for asset positions and ask prices for liability positions is permitted, but is not required mandatorily.
Ind AS 113 does not preclude the use of mid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurements within a bid-ask spread.
Fair Value Disclosures:
The disclosures under Ind AS 113 aims to equip the users of financial statements with greater transparency in respect of the following matters:
a)The extent of usage of fair value in the valuation of assets and liabilities.
b)The valuation techniques, inputs and assumptions used in measuring fair value.
c)The impact of level 3 fair value measurements on the profit and loss account or other comprehensive income.
The Standard also lays down the broad disclosure objectives and has stipulated certain minimum disclosure requirements especially in respect of Level 3 fair value measurements, since there is greater subjectivity and judgement involved in using them.
The disclosures broadly cover the following aspects:
a)Reasons for non-recurring fair value measure-ments.
b)The fair value hierarchy adopted.
c)The reasons for transfer between the hierarchical levels for recurring fair value measurements.
d)The valuation techniques adopted,including any changes therein, for both recurring and non-recurring fair value measurements.
e)Quantitative information about significant unobservable inputs for recurring level 3 fair value measurements.
f)The amount of total gains and losses recognised in profit and loss and OCI, together withline items in which these are recognised, for recurring fair value measurements categorised within level 3 of the fair value hierarchy.
g)Sensitivity analysis, both narrative and with quantitative disclosures about the significant unobservable inputs. _
(to be continued)
