IFRS 13

[Scarlet]

Hello,

I wonder if Fair value of PPE or IP is inclusive or exclusive of VAT. According to IFRS 13 the price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction cost[/b, so I am not sure if VAT can be considered as transaction cost and in the case of consideration I think that Fair value should include VAT.

[JRSB]

It's extremely likely the buyer will recover VAT anyway if they buy it so the VAT element won't come into play when they decide how much to pay, or when you decide what to price, ie the market value. Do you have a particular circumstance in mind?

[Scarlet]

Thanks, what about if the buyer is the physical person and can't claim the VAT? I am just confused about the definition of transaction costs

[JRSB]

The implication would be that you'd value the asset at 20% less than fair value because that person would have to pay VAT as part of the market value. So ignore VAT for the fair value. If a property valuer say it's worth £1m, you're not going to sell it for £833,333 to accommodate the fact that buyer can't recover VAT are you.

[Marek Muc]

as I see it, VAT is tax on the transaction and not part of the fair value

but if an asset comes with VAT imposed on the sale transaction and a typical buyer is not able to recover it, then this is a circumstance that will have a negative impact on the fair value of the asset

[JRSB]

I expect that should only be taken account of if a company had a specific asset that was highly likely only to be sold to private individuals on disposal. not sure what that would be in terms of something carried at fair value from the owning company's perspective. interested to hear what it might be

[Scarlet]

as I see it, VAT is tax on the transaction and not part of the fair value

but if an asset comes with VAT imposed on the sale transaction and a typical buyer is not able to recover it, then this is a circumstance that will have a negative impact on the fair value of the asset

Thanks, Marek
So you think that for example if the property value net of VAT is 100k and with VAT -120k, FV is 100k for both cases (buyer can claim the vat or not) or i misunderstood?

[Scarlet]

I expect that should only be taken account of if a company had a specific asset that was highly likely only to be sold to private individuals on disposal. not sure what that would be in terms of something carried at fair value from the owning company's perspective. interested to hear what it might be

I think about residential property, it is not only sold to individuals but in most cases

[JRSB]

you have residential property as PPE in the business?

[Scarlet]

No, I do not have but i think that it may be IP in some cases

[JRSB]

In the UK you typically wouldn't charge VAT on the sale of a residential property to an individual but may be different in your country.

[Marek Muc]

So you think that for example if the property value net of VAT is 100k and with VAT -120k, FV is 100k for both cases (buyer can claim the vat or not) or i misunderstood?

The fair value of the property is X. If this is a property that is typically sold with VAT to individual buyers who cannot claim VAT back and thus their cash outflow is X+VAT, then X takes that circumstances into account.

[Marek Muc]

Ps. Have you read about the fair value framework?

https://ifrscommunity.com/knowledge-bas ... framework/

[Scarlet]

Thanks!