50 IFRS 13 Practice Questions with Solutions

🎯 Master IFRS 13: 50 Practice Questions Every Student Should Know

🌟 Ready to Test Your Fair Value Knowledge?

Whether you're preparing for exams, job interviews, or just want to solidify your understanding of IFRS 13, practice makes perfect! These 50 carefully crafted questions cover everything from basic concepts to complex applications.

💡 How to Use This Guide: ✅ Try answering each question first ✅ Then check the solution and explanation ✅ Focus extra time on areas where you struggled ✅ Use these as flashcards for quick review

IFRS 13 Crypto Guide: Valuation for Students

📚 BASIC CONCEPTS (Questions 1-15)

Question 1 📊

What is the primary objective of IFRS 13?

A) To establish historical cost measurement B) To define fair value and provide a framework for measuring it C) To eliminate fair value measurements D) To standardize depreciation methods

✅ Answer: B Explanation: IFRS 13's main purpose is to define fair value, establish a single framework for measuring it, and require disclosures about fair value measurements.

Question 2 🎯

Fair value is best described as:

A) The price you paid to acquire an asset (entry price) B) The price you would receive to sell an asset (exit price) C)The replacement cost of an asset D) The book value of an asset

✅ Answer: B Explanation: Fair value is an exit price - what you'd get if you sold the asset or paid to transfer a liability in an orderly transaction.

Question 3 🏪

Which represents the highest level in the fair value hierarchy?

A) Level 3 - Unobservable inputs B) Level 2 - Observable inputs for similar items C) Level 1 - Quoted prices in active markets D) All levels are equal

✅ Answer: C Explanation: Level 1 inputs (quoted prices in active markets for identical items) provide the most reliable evidence and get highest priority.

Question 4 ⚖️

If you use both Level 1 and Level 3 inputs in a fair value measurement, how should you classify it?

A) Level 1 B) Level 2 C) Level 3 D) Average of levels used

✅ Answer: C Explanation: The measurement is classified at the lowest level of significant inputs used. Level 3 is the lowest level.

Question 5 🏢

Market participants should be:

A) Related parties only B) Independent, knowledgeable, able and willing to transact C) The company's management D)Government regulators

✅ Answer: B Explanation: Market participants must be independent, knowledgeable about the asset/liability, and both able and willing to enter transactions.

Question 6 🏦

Which market should be used for fair value measurement?

A) Always the most advantageous market B) The principal market, or most advantageous if no principal market existsC) The cheapest market available D) Any market the entity chooses

✅ Answer: B Explanation: Use the principal market (highest volume/activity) first, then the most advantageous market if no principal market exists.

Question 7 🏗️

"Highest and best use" applies to:

A) All assets and liabilities B) Financial assets only C) Non-financial assets only D) Liabilities only

✅ Answer: C Explanation: The highest and best use concept applies only to non-financial assets, considering how market participants would maximize value.

Question 8 💰

Transaction costs are:

A) Included in fair value measurements B) Excluded from fair value measurements C) Only included for Level 3 measurements D) Included only for liabilities

✅ Answer: B Explanation: Transaction costs are specific to the transaction and are excluded from fair value. However, transport costs may be included if location is a characteristic of the asset.

Question 9 🔄

The difference between entry price and exit price is:

A) There is no difference B) Entry price is what you paid; exit price is what you'd receive C) Exit price is always higherD) Entry price includes transaction costs

✅ Answer: B Explanation: Entry price = acquisition cost; Exit price = fair value (what you'd get selling today). They may differ due to market conditions.

Question 10 📈

Which valuation approach uses projected cash flows?

A) Market approach B) Cost approach C) Income approach D) Historical approach

✅ Answer: C Explanation: Income approach converts future amounts (cash flows) to present value using discount rates that reflect current market expectations.

Question 11 🎨

A unique piece of art with no comparable sales would likely be valued using:

A) Level 1 inputs B) Level 2 inputs C) Level 3 inputs D) Historical cost

✅ Answer: C Explanation: Unique assets with no market comparables require unobservable inputs (Level 3), such as estimates and assumptions.

Question 12 ⚠️

Non-performance risk includes:

A) Market risk only B) The entity's own credit risk C) Currency risk only D) Interest rate risk only

✅ Answer: B Explanation: Non-performance risk is the risk that an entity won't fulfill its obligation, including (but not limited to) the entity's own credit risk.

Question 13 🏪

An active market is characterized by:

A) High prices only B) Government regulation C) Sufficient frequency and volume of transactions D) Large number of participants only

✅ Answer: C Explanation: Active markets have sufficient frequency and volume of transactions to provide ongoing pricing information.

Question 14 📊

Which standards do NOT use IFRS 13?

A) IFRS 9 (Financial Instruments) B) IFRS 2 (Share-based Payment) C) IAS 40 (Investment Property) D) IFRS 3 (Business Combinations)

✅ Answer: B Explanation: IFRS 2 share-based payments are specifically excluded from IFRS 13's scope, along with IFRS 16 leases.

Question 15 🔍

Fair value measurements should be:

A) Entity-specific B) Market-based C) Based on management intentions D) Conservative estimates

✅ Answer: B Explanation: Fair value is market-based, not entity-specific. It uses assumptions that market participants would use, not the entity's own assumptions.

🏭 PRACTICAL APPLICATIONS (Questions 16-35)

Question 16 📱

Apple stock trades at $150 per share on NASDAQ. Your company owns 100 shares. What's the fair value?

A) Cannot determine without more information B) $15,000 (100 × $150) C) Less than $15,000 due to blockage discount D) More than $15,000 due to control premium

✅ Answer: B Explanation: Level 1 measurement: quoted price × quantity held. No adjustments for normal trading volumes or blockage factors in Level 1.

Question 17 🏠

You own a building currently used as a warehouse. Market participants would demolish it for residential development. Which value do you use?

A) Warehouse value (current use) B) Residential development value (highest and best use) C) Average of both valuesD) Demolition cost

✅ Answer: B Explanation: Use highest and best use from market participants' perspective, even if different from current use.

Question 18 💳

A corporate bond with 5% coupon has no active market, but similar bonds yield 6%. How do you value it?

A) Level 1 - Use 5% coupon rate B) Level 2 - Discount cash flows at 6% C) Level 3 - Use entity's estimate D)Historical cost

✅ Answer: B Explanation: Level 2 measurement using observable market data (6% yield) for similar instruments to discount the bond's cash flows.

Question 19 🏢

A company values its headquarters using a cost approach. This would consider:

A) What competitors' offices cost B) Current replacement cost minus depreciation C) Expected rental income D) Stock market value

✅ Answer: B Explanation: Cost approach reflects current replacement cost, adjusted for physical deterioration, functional obsolescence, and economic obsolescence.

Question 20 💼

Your company owns 1,000 shares of a private startup. No market exists. You'd use:

A) Level 1 inputs B) Level 2 inputs C) Level 3 inputs D) Original purchase price

✅ Answer: C Explanation: Private company shares with no market require Level 3 unobservable inputs like projected earnings, comparable company multiples, or discounted cash flows.

Question 21 🌾

Agricultural commodities (wheat) with quoted futures prices would be valued using:

A) Level 1 inputs B) Level 2 inputs C) Level 3 inputs D) Production cost

✅ Answer: A Explanation: Commodity futures are actively traded with quoted prices, making this a Level 1 measurement.

Question 22 🏗️

Land held for development has current use as parking ($100k value) but highest and best use as shopping center ($500k value). Fair value is:

A) $100,000 B) $500,000 C) $300,000 (average) D) Depends on entity's intentions

✅ Answer: B Explanation: Use highest and best use value ($500k) regardless of current use or entity's intentions.

Question 23 💰

A demand deposit (savings account) has fair value of:

A) Zero (no interest earned) B) Not less than the amount payable on demand C) Present value of expected cash flowsD) Historical cost

✅ Answer: B Explanation: Fair value of financial liability with demand feature cannot be less than amount payable on demand, discounted from first possible payment date.

Question 24 🔄

Interest rate swaps are typically valued using:

A) Level 1 inputs (quoted prices) B) Level 2 inputs (observable interest rates) C) Level 3 inputs (unobservable estimates) D) Notional amount

✅ Answer: B Explanation: Interest rate swaps use observable market interest rates and yield curves (Level 2) to determine fair value.

Question 25 🏦

A bank's own credit risk affects the fair value of its:

A) Assets only B) Liabilities only C) Both assets and liabilities D) Neither assets nor liabilities

✅ Answer: B Explanation: Non-performance risk (including own credit risk) affects the fair value of the entity's liabilities, not assets.

Question 26 📊

Foreign exchange rates for major currencies represent:

A) Level 1 inputs B) Level 2 inputs C) Level 3 inputs D) Not applicable to fair value

✅ Answer: A Explanation: Major currency exchange rates are quoted in active markets, making them Level 1 inputs.

Question 27 🎯

Implied volatility from option prices is an example of:

A) Level 1 input B) Level 2 input C) Level 3 input D) Transaction cost

✅ Answer: B Explanation: Implied volatility is derived from observable market data (option prices) but isn't directly quoted, making it Level 2.

Question 28 🏪

You must sell equipment quickly due to financial distress. The distressed sale price is:

A) The fair value B) Not representative of fair value C) Higher than fair value D) A Level 1 input

✅ Answer: B Explanation: Fair value assumes orderly transactions, not forced or distressed sales. The distressed price wouldn't represent fair value.

Question 29 💡

A patent with 5 years remaining life would be valued considering:

A) Original development cost B) Expected future cash flows over 5 years C) Current year's royalties only D) Legal registration fees

✅ Answer: B Explanation: Income approach: value the patent based on expected future cash flows over its remaining useful life, discounted to present value.

Question 30 🏭

Manufacturing equipment in an active resale market would be valued using:

A) Market approach (comparable sales) B) Cost approach (replacement cost) C) Income approach (future cash flows)D) Any approach management chooses

✅ Answer: A Explanation: With an active resale market, market approach using comparable sales provides the most reliable fair value evidence.

Question 31 📈

Credit spreads are typically used in valuing:

A) Real estate B) Debt securities C) Inventory D) Equipment

✅ Answer: B Explanation: Credit spreads reflect default risk and are used to discount cash flows when valuing debt securities.

Question 32 🏢

Investment property fair value changes go to:

A) Profit or loss B) Other comprehensive income C) Retained earnings directly D) Depends on the entity's choice

✅ Answer: A Explanation: Under IAS 40, fair value changes in investment property measured at fair value are recognized in profit or loss.

Question 33 🎨

Valuing a trademark with no comparable transactions would likely require:

A) Level 1 inputs B) Level 2 inputs C) Level 3 inputs D) Historical cost only

✅ Answer: C Explanation: Unique intangible assets without comparable transactions require Level 3 unobservable inputs like relief-from-royalty method.

Question 34 ⚖️

Transport costs are:

A) Always excluded from fair value B) Included if location is an asset characteristic C) Only relevant for Level 3 measurements D) The same as transaction costs

✅ Answer: B Explanation: If location is a characteristic of the asset (like commodities), transport costs to move it to principal market are included.

Question 35 🔄

When fair value equals transaction price at initial recognition:

A) No gain or loss is recorded B) A "Day 1" gain is always recorded C) The transaction price must be wrong D) IFRS 13 doesn't apply

✅ Answer: A Explanation: When transaction price equals fair value at initial recognition, no Day 1 gain or loss is recorded.

🎓 ADVANCED CONCEPTS (Questions 36-50)

Question 36 📊

A company uses portfolio-level adjustments for a group of financial instruments. This is:

A) Always prohibited under IFRS 13 B) Allowed if specific conditions are met C) Required for all financial instruments D) Only allowed for banks

✅ Answer: B Explanation: IFRS 13 allows portfolio-level measurement if the entity manages instruments on a net risk basis and meets specific criteria.

Question 37 🔍

Level 3 disclosures must include:

A) Only the fair value amount B) Quantitative information about significant unobservable inputs C) Management's personal opinions D) Historical cost information

✅ Answer: B Explanation: Level 3 disclosures require detailed information about significant unobservable inputs and sensitivity analysis.

Question 38 🏦

When measuring the fair value of the entity's own debt:

A) Ignore the entity's credit risk B) Include the entity's credit risk (non-performance risk) C) Only consider market interest rates D) Use the original borrowing rate

✅ Answer: B Explanation: Fair value of own debt includes non-performance risk, including the entity's own credit risk.

Question 39 📈

A reconciliation from opening to closing balances is required for:

A) All fair value measurements B) Level 1 measurements only C) Level 3 recurring measurements only D) Level 2 measurements only

✅ Answer: C Explanation: The reconciliation requirement applies specifically to recurring fair value measurements categorized within Level 3.

Question 40 🎯

Bid-ask spread adjustments:

A) Are never allowed B) May be used within the spread for fair value C) Must always use the bid price D) Must always use the ask price

✅ Answer: B Explanation: Entities can use the price within the bid-ask spread most representative of fair value in the circumstances.

Question 41 🏭

Control premiums are:

A) Always included in fair value B) Never included in fair value C) Included only when measuring controlling interestsD) Only relevant for Level 3 measurements

✅ Answer: C Explanation: Control premiums are included only when the unit of account is a controlling interest, not for individual shares.

Question 42 📊

Calibration of valuation techniques means:

A) Using the most complex model available B) Ensuring the technique gives transaction price at initial recognition C)Always using Level 1 inputs D) Avoiding observable market data

✅ Answer: B Explanation: Calibration ensures the valuation technique reflects current market conditions by equaling transaction price at initial recognition.

Question 43 🔄

Changes in valuation techniques should be treated as:

A) Prior period errors B) Changes in accounting policy C) Changes in accounting estimate D) Extraordinary items

✅ Answer: C Explanation: Changes in valuation techniques are treated as changes in accounting estimate under IAS 8.

Question 44 🏢

Unit of account determines:

A) The valuation technique to use B) Whether to measure individual items or groups C) The hierarchy level classification D) The discount rate to apply

✅ Answer: B Explanation: Unit of account (determined by other IFRS standards) specifies whether to measure assets/liabilities individually or as groups.

Question 45 📈

Market-corroborated inputs are:

A) Level 1 inputs B) Level 2 inputs C) Level 3 inputs D) Not used in fair value measurement

✅ Answer: B Explanation: Market-corroborated inputs are derived from or supported by observable market data, making them Level 2.

Question 46 🎯

Blockage factors:

A) Are always applied for large holdings B) Are prohibited for Level 1 measurements C) Only apply to Level 3 measurements D) Are required by IFRS 13

✅ Answer: B Explanation: Blockage factors (discounts for large holdings) are not permitted when quoted prices in active markets are available (Level 1).

Question 47 🏦

Financial liabilities with inseparable third-party credit enhancement:

A) Include the enhancement in fair value measurement B) Exclude the enhancement if accounted for separately C)Always require Level 3 measurement D) Cannot be measured at fair value

✅ Answer: B Explanation: If third-party credit enhancement is accounted for separately, exclude it from the liability's fair value measurement.

Question 48 📊

Principal market determination requires:

A) Exhaustive search of all possible markets B) Considering reasonably available information C) Government approvalD) Auditor confirmation

✅ Answer: B Explanation: Entities must consider all reasonably available information but need not conduct exhaustive searches to identify principal markets.

Question 49 🔄

Transfers between hierarchy levels are disclosed:

A) Only when moving to Level 3 B) Only at year-end C) Separately for transfers in and out of each level D) In aggregate for all levels

✅ Answer: C Explanation: Transfers into and out of each level must be disclosed and discussed separately, with reasons for transfers.

Question 50 🎯

The "exit price" notion means fair value represents:

A) The price to acquire an asset B) The price to sell an asset or transfer a liability C) The price to replace an asset D)The price paid in the most recent transaction

✅ Answer: B Explanation: Fair value is an exit price - what you'd receive to sell an asset or pay to transfer a liability in an orderly transaction.

🎯 How Did You Score?

45-50 Correct: 🏆 IFRS 13 Expert! You've mastered fair value measurement 35-44 Correct: 📚 Strong Foundation- Review the concepts you missed 25-34 Correct: 📖 Good Start - Focus on practical applications Below 25: 🎓 Keep Learning - Review basic concepts and try again

🚀 Next Steps for Students

✅ Review missed questions and understand the explanations ✅ Practice with real company examples from annual reports ✅ Join study groups to discuss complex scenarios ✅ Follow updates to IFRS 13 from the IASB ✅ Apply knowledge in internships or case studies

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