Entity-specific restrictions on assets [IFRS 13.IE29]
A donor of land specifies that the land must be used by a sporting association as a playground in perpetuity. Upon review of relevant documentation, the association determines that the donor”s restriction would not transfer to market participants if the association sold the asset (i.e. the restriction on the use of the land is specific to the association). Furthermore, the association is not restricted from selling the land. Without the restriction on the use of the land, the land could be used as a site for residential development. In addition, the land is subject to an easement (a legal right that enables a utility to run power lines across the land).
Under these circumstances, the effect of the restriction and the easement on the fair value measurement of the land is as follows:
(a) Donor restriction on use of land The donor restriction on the use of the land is specific to the association and thus would not transfer to market participants. Therefore, regardless of the restriction on the use of the land by the association, the fair value of the land would be measured based on the higher of its indicated value:
(i) As a playground (i.e. the maximum value of the land is through its use in combination with other assets or with other assets and liabilities); or
(ii) As a residential development (i.e. the fair value of the asset would be maximized through its use by market participants on a standalone basis).
(b) Easement for utility lines Because the easement for utility lines is a characteristic of the land, this easement would be transferred to market participants with the land. The fair value of the land would include the effect of the easement, regardless of whether the land”s valuation premise is as a playground or as a site for residential development.
In contrast to illustrates a restriction on the use of donated land that applies to a specific entity, but not to other market participants.
A liability or an entity”s own equity instrument may be subject to restrictions that prevent the transfer of the item. When measuring the fair value of a liability or equity instrument, IFRS 13 does not allow an entity to include a separate input (or an adjustment to other inputs) for such restrictions. This is because the effect of the restriction is either implicitly or explicitly included in other inputs to the fair value measurement. Restrictions on liabilities and an entity”s own equity are discussed further at below.
IFRS 13 has different treatments for restrictions on assets and those over liabilities. The IASB believes this is appropriate because restrictions on the transfer of a liability relate to the performance of the obligation (i.e. the entity is legally obliged to satisfy the obligation and needs to do something to be relieved of the obligation), whereas restrictions on the transfer of an asset generally relate to the marketability of the asset. In addition, nearly all liabilities include a restriction preventing the transfer of the liability. In contrast, most assets do not include a similar restriction. As a result, the effect of a restriction preventing the transfer of a liability, theoretically, would be consistent for all liabilities and, therefore, would require no additional adjustment beyond the factors considered in determining the original transaction price. If an entity is aware that a restriction on the transfer of a liability is not already reflected in the price (or in the other inputs used in the measurement), it would adjust the price or inputs to reflect the existence of the restriction. However, in our view this would be rare because nearly all liabilities include a restriction and, when measuring fair value, market participants are assumed by IFRS 13 to be sufficiently knowledgeable about the liability to be transferred.