Fair Value

Fair value has been a standard of measurement in financial reporting for decades. However in 2011, the IFRS came up with a new definition for fair value therefore adding to the previous meanings of the term. According to IFRS 13/AASB 13, fair value means 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 (Hogget et al 2011 p. 830). The concept of price that would be received to sell an asset is exit price. An exit price is what the asset could be sold for. Fair value measurement is essential in accounting because it is the process by which valuations are placed on all elements reported in financial statements. The conceptual framework points out that a number of different measurement bases may be used for assets. FijiCare’s Insurance Limited mainly uses the historical cost method. Under the historical cost measurement basis, an asset is recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire it at its acquisition date. When an entity acquires property, plant and equipment or fixed assets, under IAS 16/ AASB 116, in order to account for the acquisition of fixed assets, the cost method must be used, by which the assets acquired are initially recorded on recognition date at their cost. IAS 16/AASB 116 also requires an entity to adopt a model for accounting for these assets; FijiCare’s Insurance Limited uses the revaluation method. The revaluation model requires that an asset must be revalued to its fair value. Fair values must be capable of verifiable measurement and revaluations must be made, either upwards or downwards, with sufficient regularity to ensure that the carrying amount of each asset does not differ materially from its fair value (Hogget et al 2011 p. 868). As part of the other comprehensive income (OCI) Gain on revaluations is usually referred to as a ‘gain and revaluation’. Therefore, the