In accordance with the Basic Standards of Accounting for Business Enterprises, the Ministry of Finance issued Accounting Standard for Business Enterprises No. 39 — Fair Value Measurement on 2014/1/27, which became effective on 2014/7/1.
1. Overview of Guidelines
Fair value is 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. This Standard applies when other relevant accounting standards require or permit the use of fair value for measurement or disclosure.
II. Valuation Techniques
Three Valuation Methods
- • Market ApproachValuing using the prices of identical or similar assets, liabilities, or a combination of assets and liabilities, as well as other relevant market transaction information.
- • Income ApproachValuation technique that converts future amounts into a single present value
- • Cost Method: Amount required to reset the asset service capability
III. Fair Value Hierarchy
Level 1 Input
The unadjusted quoted price in an active market for identical assets or liabilities that are accessible at the measurement date.
Second-level input value
Relevant observable inputs for the asset or liability, other than quoted prices in active markets (Level 1).
Level 3 Input Value
Unobservable inputs related to assets or liabilities.
IV. Measurement of Nonfinancial Assets and Liabilities
When measuring the fair value of a non-financial asset, an entity shall consider the ability of market participants to derive economic benefits from the asset's highest and best use. When measuring the fair value of a liability, an entity shall assume that the liability is transferred to other market participants on the measurement date.
Non-performance risk
When measuring liabilities at fair value, an entity shall consider nonperformance risk and assume that the nonperformance risk remains unchanged before and after the transfer of the liability. Nonperformance risk includes, but is not limited to, the entity's own credit risk.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 39 — Fair Value Measurement (PDF)