Proceedings

highest and best use. Highest and best use refers to the use of an asset by market
participants that would maximise the value of the asset or the group of assets and
liabilities considering uses of the asset that are physically possible, legally permissible
and financially feasible at the measurement date. A physically possible premise takes
into account the physical characteristics of the asset to be considered when pricing the
asset, such as the location or size of a property. A legally permissible hypothesis takes
into account any legal restrictions on the use of the asset such as the zoning
regulations applicable to a property. A financially feasible premise takes into account
whether a use of the asset that is physically possible and legally permissible generates
adequate income or cash flows to produce an investment return normally required
from an investment in that asset put to that use.
The fourth question (Q 6) was designed in order to see the respondent’s views on the
requirement for the entity to split the fair value of group assets into two components:
(a) the value of the assets and assuming its current use (b) the amount by which this
value varies fair value of assets (i.e. incremental value).
This question have arisen live disputes, and the vast majority of respondents saw the
provision as being irrelevant and as having a lot of disadvantages among which we
quote: irrelevant, leading to confusion, unnecessarily increases the complexity of
evaluation and reporting, and so on. Most of the respondents suggested that this
recognition of the value of the asset value must be made incremental (global) and not
separately.
Question 5
Fair value at initial recognition
When an asset is acquired in an exchange transaction for that asset or liability, the
transaction price is the entry price, meaning the price paid to acquire the asset. Even if
conceptually entry prices and exit prices are different, in many cases they will be
equal. In such cases, the fair value of an asset or liability at initial recognition equals
the entry (transaction) price. There are many factors enumerated by IFRS to be taken
into consideration in order to determine if the entry price is the same as the exit price.
However, when an entity uses an asset together with other assets in a way that differs
from the highest and best use of the asset the exposure draft proposes that the entity
should separate the fair value of the asset group into two components: (a) the value of
the assets assuming their current use and (b) the amount by which that value differs
from the fair value of the assets (ie their incremental value). The entity should
recognise the incremental value together with the asset to which it relates (see
paragraphs 20 and 21 of the draft IFRS). Moreover, if an IFRS requires or permits an
entity to measure an asset or liability initially at fair value and the transaction price
differs from fair value, the entity recognizes the resulting gain or loss in profit or loss
unless the IFRS requires otherwise.
The fifth question (Q 9) was aiming to find the opinion on how to initially recognize
the value of a possible difference between the fair value and the value of entry (entry
price). The majority of respondents have not agreed to such recognition of difference
in the income statement claiming that lead to its volatility and found that such a
provision allows manipulation of financial statements (59%). However the exposure
draft provides that such recognition is possible only when relevant IFRSs require or
permit the use of those elements of fair value for initial recognition.
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