Debt obligation: quoted price [IFRS 13.IE40-42]
On 1 January 20X1 Entity B issues at par a CU2 million BBB-rated exchange-traded five-year fixed rate debt instrument with an annual 10% coupon. Entity B designated this financial liability as at fair value through profit or loss.
On 31 December 20X1 the instrument is trading as an asset in an active market at CU929 per CU1,000 of par value after payment of accrued interest. Entity B uses the quoted price of the asset in an active market as its initial input into the fair value measurement of its liability (CU929 × [CU2,000,000 / CU1,000] = CU1,858,000).
In determining whether the quoted price of the asset in an active market represents the fair value of the liability, Entity B evaluates whether the quoted price of the asset includes the effect of factors not applicable to the fair value measurement of a liability, for example, whether the quoted price of the asset includes the effect of a third-party credit enhancement if that credit enhancement would be separately accounted for from the perspective of the issuer. Entity B determines that no adjustments are required to the quoted price of the asset. Accordingly, Entity B concludes that the fair value of its debt instrument at 31 December 20X1 is CU1,858,000. Entity B categorises and discloses the fair value measurement of its debt instrument within Level 1 of the fair value hierarchy.