The price which will be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date is termed as Fair Value by IASB.This quotation raises questions about the utility of fair value information about assets that are held for use rather than exchange. Measuring fair value is a key issue. With IFRS 13 the standard-setters have been concerned with way for measuring fair value rather than when to require fair value measures.
As noted in section 3.8.5 of the text, a number of respondents to the IASB questioned whether the measurement of fair value should be prescribed before the measurement section of the Framework has been determined. Potentially the way in which users want to use fair values to make decisions may have an effect on way of measuring fair value. The analysis in the section 3.8.5 referring to Whittington’s two schools of thought in relation to measurement shows large differences in the purpose of information and its determination.
In the example of the land on which a factory is built but for which there is a higher and better use in terms of residential property, the question of whether the factory should have a fair value of zero may be of concern. It could be argued that measuring the factory at zero would not provide decision-useful information when an entity is using that factory in its operations.
In particular users may want to see a depreciation component determined so that they could assess the economic resources consumed in the generation of cash flows process. In other words, it could be argued that the use of fair value in this circumstance does not provide the most decision-useful information.
However on the other hand, recording the factory at a zero amount alerts the users of the report that there are alternative uses for the land and factory.