a. Prior to the advent of IFRS 13, many standards such as IAS 16, IAS 38, IAS 40, and IAS 39, among others, required the use of fair value. These various requirements have been harmonized with the introduction of IFRS 13 Fair Value Measurement.

Required:
Define fair value in accordance with IFRS 13. (2 Marks)

b. One of the companies formally operating in Nigeria that had recently relocated its operations to Ghana as a result of the challenging business environment in Nigeria has access to both Lagos and Accra markets for its product. The product sells at slightly different prices (in naira) in the two active markets. An entity enters into transactions in both markets and can access the price in those markets for the product at the measurement date as follows:

Required:
i. Briefly explain the principal market of an asset in accordance with IFRS 13 and determine what fair value would be used to measure the sale of the above product if the Lagos market were the principal market.

(4 Marks)

ii. How is fair value determined in the absence of a principal market and what fair value would be used to measure the sale of the above product if no principal market could be identified? (4 Marks)

c. Megida Plc, a public limited liability company, has just acquired some hectares of land in Abuja earmarked by the government for an economic empowerment program of citizens given the harsh economic environment in Nigeria and so is only meant for commercial purposes. The fair value of the land if used for commercial purposes is ₦100 million. If the land is used for commercial purposes, it is expected that it will result in reducing unemployment. This will attract a tax credit annually, which is based upon the lower of 15% of the fair market value of the land or ₦10,000,000 at the current tax rate. The current tax rate as fixed by the government is 20%.

Megida Plc has determined that, given the nature of Abuja’s land, market participants would consider that it could have an alternative use for residential purposes. The fair value of the land Megida Plc has just acquired for residential purposes before associated costs is estimated to be ₦148 million. In order to transform the land from its commercial purposes to residential use, there are estimated legal costs of ₦4,000,000, a project viability analysis cost of ₦6,000,000, and costs of demolition of the commercial buildings of ₦2,000,000.

In addition, permission for residential use has not been formally given by Abuja Municipal Authority. This has created uncertainty in the minds of market participants. Consequently, the market participants have indicated that the fair value of the land, after the above costs, would be discounted by 20% because of the risk of not obtaining the planning permission from Abuja Municipal Authority.

Required:
Discuss the way in which Megida Plc should compute the fair value of the Abuja land with reference to the principles of IFRS 13 Fair Value Measurement.

(10 Marks)