How does an entity measure the fair value of a tangible asset (such as property, plant and equipment) that does not have an observable market price or directly identifiable cash flows?
A cost approach will sometimes be an appropriate valuation technique for a fair value measurement, for example when an asset does not have an observable market price and it does not generate directly identifiable cash flows. The replacement cost approach assuming an in-use valuation premise is generally appropriate in such situations because 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.
Related Questions
- An entity is applying the revaluation option for some items of property, plant and equipment. Can it use a valuation as of a date other than the date of transition?
- What information does fair value provide when an entity is using an asset or fulfilling a liability different from how market participants would?
- What happens if, as a result of revaluing property, plant or equipment, the estimated useful life of the asset changes?
