Understanding Fair Value Measurement in Financial Reporting

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Victoria University**We aren't endorsed by this school

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BAO 2203

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Accounting

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Dec 11, 2024

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Uploaded by JudgeDugongMaster976

Solutions manualto accompany Financial reporting4th edition by Loftus, Leo, Daniliuc, Boys, Luke, Ang and Byrnes Prepared by Karyn Byrnes Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS. © John Wiley & Sons Australia, Ltd 2023

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.2Chapter 4: Fair value measurement Comprehension questions 1. Name three current accounting standards that permit or require the use of fair values for the measurement of assets or liabilities. A list of current accounting standards that permit or require the use of fair values for the measurement of assets or liabilities is as follows: AASB 2 Share-based paymentparagraph 6A AASB 3 Business combinations paragraph 32 AASB 5 Non-current assets held for sale and discontinued operationsparagraph 15 AASB 9 Financial instrumentsparagraph 4.1 AASB 16 Leasesparagraph 34 AASB 116 Property, plant and equipmentparagraph 31 AASB 127 Separate financial statementsparagraph 11 AASB 136 Impairment of Assetsparagraph 18 AASB 138 Intangiblesparagraphs 33, 75 AASB 140 Investment propertyparagraph 30 AASB 141 Agriculture paragraph 13.2. What are the main objectives of AASB 13/IFRS 13? Discuss why such a standard was considered necessary. The main objectives are of AASB 13/IFRS 13: to define fair value to establish a framework for measuring fair value to require disclosures about fair value measurement (AASB 13, paragraph 1). In response to various accounting scandals and corporate collapses, the International Accounting Standards Board (IASB) issued IFRS 13 Fair Value Measurementin 2011 to provide a more regulated and consistent approach to how companies determine the fair values of their assets and liabilities. The standard also requires companies to disclose more details about their fair value measurements. 3. What are the key elements of the definition of ‘fair value’? Explain the effects of inclusion of each element in the definition. Fair value measurement is based on a hypotheticaltransaction that includes three key elements: (i) Current exit price: to sell an asset or paid to transfer a liability. The current exit priceis based on the perspective of the entity that holds the asset or owes the liability. For an asset, the exit price is the expected future cash inflows generated by the acquiring entity from the use of the asset or from the sale of the asset. For a liability, the exit

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.3price is the expected future cash outflows for the settlement of the liability or the price to transfer the liability to a market participant. (ii) In an orderly transaction. AASB 13 defines an orderly transactionas “a transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (e.g. a forced liquidation of distress sale)”. An orderly transaction is one where both parties to the transaction are considered to be at arm’s length. That is, the goods are sold at their full market value, and notat a ‘sale’ or ‘discounted’ price. Factors that would indicate a transaction is notorderly include: the seller is in or near bankruptcy the seller was forced to sett to meet regulatory or legal requirements. (iii) Between market participants. AASB 13 defines market participantsas “buyers and sellers in the principal (or most advantageous) market for the asset or liability”. The market participants must be: independent of each other. knowledgeable – have a reasonable understanding of the asset or liability and the transaction using all available information. able and willing to enter into a transaction for the asset or liability (i.e. they are not forced to enter into the transaction). 4. Compare entry price to exit price for specialised plant. How does AASB 13/IFRS 13 resolve the debate on which price to use? An entry priceis one that would be paid to buy an asset or that would be received to incur a liability. An exit priceis one that would be received to sell an asset or paid to transfer a liability. They are expected to be the same if they relate to the sameasset or liability on the samedate in the sameform in the same market. This is probably only true in an active market. 5. What are market participants? Is the entity applying AASB 13/IFRS 13 a market participant? The transaction being considered to determine an asset’s or liability’s fair value is a hypothetical one. The entity observes the current market for the same or similar items that are being transacted at their full market price. The market participants in the observed market are the buyers and sellers in the principal (or most advantageous) market that are independent of each other, are knowledgeable and have a reasonable understanding of the transaction and the asset or liability involved, they have the capacity to enter into the transaction, and they are willing (not forced or compelled) to enter into the transaction.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.4The entity applying AASB 113 is not a market participant as per AASB 13. Assumptions made by market participants are not those made by the entity itself. The fair value is not entity-specific. 6. Does the measurement of fair value take into account transport costs and transactions costs? Explain. Transaction costsare the incremental direct costs to sell an asset or transfer a liability, while transport costsare the costs necessarily incurred to transfer an asset to its most advantageous market. The measurement of fair value requires both costs to be taken into consideration in the determination of the most advantageous market. However, only transport costs are used in the calculation of the fair value number. Transaction costs are entity-specific, transport costs are not; they relate to the asset itself. 7. How does the measurement of the fair value of a liability differ from that of an asset? What are the key steps in determining a fair value measure? The fair value measurement of a liability is the amount paid to transfer a liability to another market participant. It assumes that: the liability will remain outstanding; the transferee will now be required to fulfil the obligation; and the liability is notsettled at measurement date. When considering the fair value of an asset, the entity must determine: 1. The particular asset that is the subject of the measurement (consistent with its unit of account). 2. For a non-financial asset, the valuation premise that is appropriate for the measurement (consistently with its highest and best use). 3. The principal (or most advantageous market) for the asset. 4. The valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use in pricing the asset and the level of the fair value hierarchy within which the inputs are categorised. When considering the fair value of a liability, the entity must determine the same steps as for an asset except forstep 2. That is, no valuation premise (in-combination or stand-alone) is required for liabilities. 8. Explain the difference between the current use of an asset and the highest and best use of that asset. The current useis how the reporting entity is currently using an asset. The highest and best useis based on how market participants will use the asset. An example of where the two may differ is where land is currently used as a site for a factory, but the land could be used for residential purposes. The current use is industrial while the highest and best use could be either industrial or residential.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.6to measure the expected royalty rate that could be obtained by allowing other entities to use the trademark to produce the products covered by the trademark. 12. What valuation techniques are available to measure fair value? There are three valuation techniques available to measure fair value: The market approach: prices generated by market transaction The costapproach: prices based on amounts required to replace the service capacity of an asset. The income approach: prices generated by considering future cash flows or future income and expenses. 13. Discuss the differences between the various levels in the fair value hierarchy. Do you agree that the outcomes at all three levels should be described as ‘fair values’? The fair value hierarchyis a hierarchy of inputs into the fair value measurement. The inputsare the assumptions that market participants make when using a valuation technique in pricing an asset or liability. The inputs are classified as observable or unobservable. The fair value hierarchy gives the highest priority to observable inputs and the lowest to unobservable inputs. The hierarchy does NOT prioritise the valuation techniques, just the inputs to those techniques. The fair value hierarchy prioritises inputs into 3 levels – Level 1, 2 and 3. The hierarchy is also used in the disclosure process as a fair value measure is classified in its entirety based on the lowest level input that is significant to the entire measurement. 14. Discuss the use of entity-specific information in the generation of fair value measurements under AASB 13/IFRS 13. Entity-specific factors are only considered to affect the fair value measurement of an asset and do not apply to liabilities. This is due to the fact that an asset can be used for varying purposes by market participants, whereas liabilities are not seen as having alternative uses.Information that is specific to an entity is required to be ignored when considering the fair value of an asset. This is because the fair value is measured on observations of market participants and not with any particular entity. An example of an entity-specific factor would be blockage – discounts on sale of items in blocks or bulk quantities. Assuming all criteria for fair value measurement are met, if a buyer purchases one item, the value of the asset would be its ‘highest and best use’. However, when an entity is offered a discount for purchasing multiple items of the same product, the discounted price per item is lowerthan its highest or best use. The offering of discounts for bulk purchases in the market place is therefore ignored when determining fair value.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.7Another example of an entity-specific factor is the way in which a particular acquirer would use the asset if they were to purchase it. The fair value must be determined based on the potentialuses, and not specificuses, by market participants. Case studies Case study 4.1 Fair values causing tension in the accounting profession Find and read the following article: Cain, A 2013, ‘Fair value continues to captivate’, 2 July, Charter, vol. 84, no. 6, pp. 31–2. Required What difficulties have been identified by accounting practitioners in relation to the application of fair value measurement? Accounting practitioners have identified the following difficulties in applying fair value measurement: Although fair value is defined by AASB 13/IFRS 13 Fair Value Measurement, the risk of confusion and misinterpretation arises from the use of other definitions of fair value for other purposes, such as taxation. The use of fair value may increase the volatility of items reported in the statement of financial position which, in turn, would increase the volatility of reported profits Amounts reported may be sensitive to the reporting date, as illustrated in the article by a hypothetical example of a share with daily movement in prices of 30%. Users of financial statements might not understand the implications of fair value measurements on financial statements. Too much judgement and subjectivity in determining amounts reported in financial statements. Different approaches to estimation of fair value may reduce the comparability of financial statements. The highest and best use might yield a valuation that exceeds the future economic benefits expected to be derived from the entity’s use of the asset, particularly in the context of not-for-profit entities.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.8Case study 4.2 Fair values and Enron Find and read the following article: Benston, G 2006, ‘Fair value accounting: a cautionary tale from Enron’, Journal of Accounting and Public Policy, vol. 25, no. 4, pp. 465–84. Required Describe the fair value accounting practices that emerged from the Enron scandal. In your view, are there sufficient safeguards to prevent a similar scandal in future? Benston (2006) describes several fair value practices that were identified in the Enron scandal. The following discussion focuses on the less complex practices, that is, the fair value applications practised by Enron that are less dependent on an understanding of accounting issues covered in subsequent chapters of this book. The fair value measurements used by Enron were typically based on estimated cash flows. They were fair value estimates that would currently be classified as using Level 3 inputs under AASB/IFRS 13 Fair Value Measurement, thus triggering higher levels of disclosure about the estimates used. Fair value accounting for energy contracts:Enron entered into contracts for the long term supply of energy at fixed prices. Based on assumptions of expected future increases in prices, Enron then estimated the fair value of the contract and used that value to record the contract as an asset with a corresponding gain recognised in profit or loss. This practice is effectively capitalising expected future profits as an asset and recognising the corresponding gain in reported profits. Fair value accounting for ‘merchant’ investments: Enron established investment vehicles, such as other companies, which are referred to as merchant investments to embark upon some investment projects. It accounted for its investments in merchant companies as financial assets rather than including all of their assets and liabilities in its consolidated financial statements. Treating the merchant investments as financial assets meant that Enron was permitted to apply fair value measurement in accounting for them. Their fair value was estimated based on assumptions about the future profits and cash flows to be derived from the long term investment projects undertaken by the merchant investment entities. There was

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.9inconsistency in the application of fair value in that revaluation increments were recognised but revaluation decrements were ignored or delayed. This practice effectively combined off-balance sheet financing and investment with capitalisation of expected future profits as an asset and recognising the corresponding gain in reported profits. Energy management contracts:These involved two applications of fair value accounting. First, Enron’s investment in ‘Enron Energy Services’, a retail energy supply business, was revalued and the corresponding gain, recognised in profit or loss. This was similar to the treatment of ‘merchant investments’ described above. Second, contracts with companies and institutions for the supply of energy were marked to fair value, based on assumptions of expected future profits from the contracts. This practice is effectively recognising profits when entering into the contract, rather than as the energy is supplied in accordance with the terms of the contract. Investment in broadband services:Enron’s business model for this venture involved swapping surplus (dark) fibre on its network for the right to use the fibre of other networks. Enron recognised gains in profit or loss by revaluing dark fibre. It also established a tech start-up, Avici Systems, which it floated on the stock exchange. Enron revalued its shares in the Avici Systems based on the observed market price but this was not actually applicable to Enron’s holding of Avici Systems securities, which was subject to trading restrictions. The gain on revaluing the shares was also recognised in profit or loss, which would be typical for securities held for trading. Blockbuster partnership: Enron entered into a partnership with Blockbuster to broadcast films. Although Enron did not have the technology to required, and Blockbuster did not have the rights to broadcast the films, Enron measured its investment in the project at fair value based on assumed future profits. Subsequent increments in fair value, based on assumed growth in future profits, were recognised in profit or loss even though the project did not generate any revenue. Derivative financial instruments:Enron accounted for its holding of derivative financial instruments at fair value through profit or loss. While this is normal practice and consistent with both US GAAP (Generally Accepted Accounting Principles) and IFRSs at the time, the measurement of fair value was questionable. Benston reports that it was common practice for yield curves to be manipulated to manage reported numbers. As will be seen in later chapters in this book, accounting for contracts with customers at fair value and recognising income from initial measurement or subsequent remeasurement is not consistent with AASB 16/IFRS 16 Revenue from Contracts with Customers. That standard requires revenue to be recognised as each performance obligation is satisfied. Some of the other applications of fair value by Enron involved complex contractual arrangements that may be affected by multiple accounting standards. For instance, some contracts included embedded derivatives and the appropriate treatment can vary depending on specific terms of the contract, such as whether the parties can settle on a net basis instead of delivery of the commodity. However, AASB 13/IFRS 13 Fair Value Measurementprescribes extensive disclosure requirements for fair value estimates that use Level 3 inputs. These disclosure requirements are likely to deter scandalous applications of fair value such as those adopted by Enron, and at the very least would provide users with more information with which to assess the credibility of the estimates used.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.10Case study 4.3 Fair values and the conceptual framework Find and read the following article: Whittington, G 2008 ‘Fair value and the IASB/FASB Conceptual Framework project: an alternative view’, Abacus, vol. 44, no. 2, pp. 139–68. Required Whittington argues there are two broad schools of thought in relation to measurement: the fair value view and the alternative view. What are the main conceptual features of these two views? Explain which view you prefer. The fair value viewassumes markets are relatively perfect and complete and therefore financial reports should meet the needs of passive investors and creditors by reporting fair values derived from current market prices. Fair value is considered to be an exitvalue (the price received to sell an asset) and does not include transaction costs. The emphasis is on the best price that could be gained from a hypothetical market as opposed to the actual price that would be obtained between specific entitiesinvolved in the transaction. The main conceptual features of the fair value view are: Usefulness for economic decisions is the sole objective of financial reporting.Current and prospective investors and creditors are the reference users for general purpose financial statements.Forecasting future cash flows, preferably as directly as possible, is the principle need of those users.Relevance is the primary characteristic required in financial statements.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.11Reliability is less important and is better replaced by representational faithfulness, which implies a greater concern for capturing economic substance, and less with statistical accuracy.Accounting information needs ideally to reflect the future, not the past, so past transactions and events are only peripherally relevant.The implications of the fair value view are: Stewardship is not a distinct objective of financial statements, although its needs may be met incidentally to others. Present shareholders have no special status amongst investors as users of financial statements. Past transactions and events are relevant only insofar as they can assist in predicting future cash flows. Prudence is a distortion of accounting measurement, violating faithful representation. Cost (entry value) is an inappropriate measurement basis because it relates to a past event (acquisition) whereas future cash flow will result from future exit, measured by fair value. Fair value, as market selling (exit) price, should be the measurement objective. The balance sheet is the fundamental financial statement, especially if it is fair valued. Comprehensive income is an essential element of the income statement: it is consistent with changes in net assets reported in the balance sheet. The alternative viewassumes markets are relatively imperfect and incomplete and such a market setting suggest that financial reports should meet the monitoring requirements of current shareholders (stewardship) by reporting past transactions and events using entity-specific measurements that reflect the opportunities actually available to the reporting entity. The main features of the alternative view are: Stewardship, defined as accountability to present shareholders, is a distinct objective, ranking equally with decision usefulness. Present shareholders of the holding company have a special status as users of financial statements. Future cash flows may be endogenous: feedback from shareholders (and markets) in response to accounting reports may influence management decisions. Financial reporting relieves information asymmetry in an uncertain world, so reliability is an essential characteristic. Past transactions and events are important both for stewardship and as inputs to the prediction of future cash flows (as indirect rather than direct measurement). The economic environment is one of imperfect and incomplete markets in which market opportunities will be entity-specific. The implications of the alternative view are: The information needs of present shareholders, including stewardship requirements must be met. Past transactions and events are relevant information and, together with reliability of measurement and probability of existence, are critical requirements for the recognition of elements of accounts, in order to achieve reliability. Prudence, as explained in the current IASB Framework and in the ASB's Statement of Principles, can enhance reliability.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.12Cost (historic or current) can be a relevant measurement basis, for example as an input to the prediction of future cash flows, as well as for stewardship purposes. The financial statements should reflect the financial performance and position of a specific entity, and entity specific assumptions should be made when these reflect the real opportunities available to the entity. Performance statements and earnings measures can be more important than balance sheets in some circumstances (but there should be arithmetic consistency—articulation—between flow statements and balance sheets).

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.13Case study 3.4 Fair values of property, plant and equipment in the United States Find and read the following article: Hermann, D, Saudagaran, S. & Thomas, W 2006, ‘The quality of fair value measures for property, plant and equipment’, Accounting Forum, vol. 30, no. 1, July, pp. 43–59. Required Summarise the history of revaluations of property, plant and equipment in the United States. What concerns led the United States to prevent property, plant and equipment being carried at an amount above cost to the entity? Revaluation of property, plant and equipment (PPE) fell within the range of Generally Accepted Accounting Principles in the US (US GAAP) until around 1940. Although never explicitly prohibiting the use of fair values, the Securities and Exchange Commission (SEC) began discouraging the use of fair value accounting for PPE and the disclosure of fair values of PPE in the financial statements in the late 1930s. By the 1940s the SEC effectively removed the option to recognise PPE at fair value through its regulation of information filed by companies with the SEC. By the 1950s, this had been extended to banning the disclosure of the fair value of PPE in the notes to the financial statements. The formal prohibition of fair value accounting was made by the Accounting Principles Board of the AICPA in 1965. The SEC’s attitude towards fair value accounting for PPE reflected concerns about the use of unsubstantiated valuations in the 1920s (before the SEC came into existence) (Zeff 1995) and the view that the fair value measurements are too soft, i.e., too subjective (Schuetze 2001).

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.14Case study 3.5 Fair value accounting: the shortcomings Find and read the following article: Benston, G 2008, ‘The shortcomings of fair value accounting described in SFAS 157’, Journal of Accounting and Public Policy, vol. 27, no. 2, March–April, pp. 101–14. Required Summarise Benston’s main criticisms of fair value accounting in the United States and discuss if they are also applicable to AASB 13/IFRS 13. Benston (2008) argues that fair value measurements that are not based on actual market prices are costly to determine and difficult to verify. The estimation of fair value require identification of what the market would consider to be the highest and best use of the asset. This problem applies equally to the measurement of fair value under AASB 13/IFRS 13 Fair Value Measurement. Benston (2008) criticises the illustrative examples in the implementation guidance in Appendix A of SFAS 157 because they include calculations of value-in-use and entrance values. The value-in-use is inconsistent with the definition of fair value because it is entity-specific rather than capturing how a hypothetical market would value the asset. The use of entry prices is considered to be inconsistent with the exit value approach adopted in the definition of fair value. These criticisms also apply to AASB 13/IFRS 13. The cost approach as a valuation technique is permitted (refer AASB 13/IFRS 13 Appendix B, paragraphs B8-B9). Similarly, the income approach, in particular present value techniques, involves very similar calculations to value in use (refer AASB 13/IFRS 13 Appendix B, paragraph B10-B30). However, as noted in AASB 13/IFRS 13 Illustrative Examples, paragraph IE4, there are circumstances in which the entry price and exit price are the same. Further, it should be noted the present value techniques may provide be a reasonable approximate of the value that would be placed on the asset by the market, particularly where there is no reason to expect that the entity’s use of the asset is different from the highest and best use. Another reason for Benston (2008)’s criticisms of the illustrations provided in the implementation guidance for SFAS 157 is the inclusion of transactions costs, contrary to the definition in the Standard. This problem does not appear to apply to AASB 13/IFRS 13 where

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.15transaction costs are only used to determine which market is most advantageous in the absence of a principal market for the asset. Benston (2008) is concerned that the examples for SFAS 157 do not include inventories and non-current assets acquired in a business combination. He suggests that work-in-progress inventories may have a fair value below cost because of the difficulty of selling unfinished goods. He further suggests that this would result in the recognition of losses. This argument is inconsistent with the current requirements under AASB 3/IFRS 3 Business Combinationsfor accounting for a business combination as fair value adjustments are not recognised as income or expenses of the acquirer. Lastly, Benston (2008) suggests that fair values relying on Level 2 or Level 3 inputs are easily manipulated. Further, such estimates of fair value are costly to measure and difficult for auditors to verify and challenge. This criticism also applies to fair values measured using Level 2 and Level 3 inputs under AASB 13/IFRS 13.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.16Case study 3.6 Fair value measurement disclosures Find a recent annual report of a top 50 company listed on the Australian Securities Exchange (www.asx.com.au) that includes some assets and/or liabilities measured at fair value at the reporting date. Required Consistent with the requirements of AASB 13/IFRS 13, what disclosures have been made in the notes to the financial statements regarding the fair value measurement of assets and liabilities? Describe why the disclosures provide useful information to the users of the financial statements. Students should find an annual report of a top 50 company listed on the ASX website (www.asx.com.au) and comment on the fair value disclosures that are included in the report.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.17Application and analysis exercises Exercise 3.1 Valuation premise for measurement of fair value Maple Ltd conducts a business that makes women’s handbags. It operates a factory in an inner suburb of Perth. The factory contains a large amount of equipment that is used in the manufacture of handbags. Maple Ltd owns both the factory and the land on which the factory stands. The land was acquired in 2013 for $400 000 and the factory was built in that year at a cost of $1 040 000. Both assets are recorded at cost, with the factory having a carrying amount at 30 June 2023 of $520 000. In recent years a property boom in Perth has seen residential house prices double. The average price of a house is now approximately $1 000 000. A property valuation group used data about recent sales of land in the area to value the land on which the factory stands at $2 000 000. The land is now considered prime residential property given its closeness to the city and, with its superb ocean views, its suitability for building executive apartments. It would cost $200 000 to demolish the factory to make way for these apartments to be built. It is estimated that to build a new factory on the current site would cost around $1 560 000. Required The directors of Maple Ltd want to measure both the factory and the land at fair value as at 30 June 2023. Discuss how you would measure these fair values. (LO3) The following steps should be followed in the measurement of these fair values: 1. Determine the asset or liability that is the subject of measurement: In this case, there are 2 assets that could be measured at fair value, namely land and factory. An alternative would be to consider the land and the factory as a single asset. 2. Determine the valuation premise consistent with the highest and best use: The land could be sold for residential purposes for an estimated $2 000 000. Given the cost to demolish the existing factory of $200 000, the land could be sold for residential purposes for $1 800 000. Measuring fair value in this fashion assumes a specific use and is based on an in-exchange valuation premise as the land is considered on a stand-alone basis.The land and factory could also be sold as a package for use by market participants in conjunction with other assets. The factory has been depreciated by the reporting entity to half its original cost. Given the cost to build a new factory is $1 560 000, a depreciated replacement cost of the existing factory could be said to be $780 000. However, as the factory could presumably be viably built on a cheaper block of land i.e. one not usable for residential purposes, it is unlikely that there is a market for the land and the factory on an in-use basis. A market participant would be forced to pay the $1 800 000 for the factory and the land given the alternative use of the land for residential purposes. 3.Determine the most advantageous market for the assets: The most advantageous market would appear to be the selling of the property for residential purposes. 4.Determine the valuation technique:The market approach would be the appropriate valuation technique given that there are observable market inputs in relation to the selling

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.18prices of similar properties. The land has a fair value based on market prices for similar properties of $1 800 000. The factory has a zero fair value as a separate asset. Illustrative Example 3.2 considers a similar situation to this case. The highest and best use of the land is determined by comparing: (i) the value of the land as a vacant block for residential purposes which would include the factory at a zero fair value, and (ii) the value of the land as currently developed for industrial use which would include the factory as an ongoing asset. The highest and best use is the higher of these two values. If (i) is chosen, then the factory has a zero fair value and no subsequent depreciation would be determined. If (ii) is chosen, then it would be necessary to determine the fair value of the land separate from the fair value of the factory in order to depreciate the factory. It could be argued that the fair value of the factory equals the difference between the fair value of the land for residential purposes and the fair value of the combined assets.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.19Exercise 3.2 Valuation techniques and inputs used An entity acquired a machine in a business combination that is held and used in its operations. The machine was initially acquired from a supplier and was then customised by the entity for use in its own operations. The highest and best use of the machine is its use in combination with other assets as a group. The valuation premise is then ‘in-combination’. Required 1. What two valuation techniques could be used to determine the fair value of the machine? 2. What would be the level of the inputs to the two valuation techniques? (LO3) 1. The two valuation techniques that could be used to determine the fair value of the machine are: The market approach: the entity would need to obtain quoted prices for comparable machines then adjust the price for factors such as wear and tear, age, location, transport costs and the customisation costs for use in its own operations. The cost approach: the entity would need to determine the cost of a custom-made machine that is identical in size and usefulness to the one it already has. Another option would be to acquire a new machine that is similar to the one required and then determine the costs to customise the new machine for its own operations. 2. The inputs used for each valuation technique are: Market approach– Level 2 inputs – costs for a machine are observable, but are not for an identical asset. Cost approach– Level 2 inputs – the costs would include the raw materials and labour incurred by the entity to build the customised machine itself. Alternatively, the costs would be the payment to another entity to build the machine for them. If a similar machine is purchased, the cost would be that paid for the similar asset plus costs incurred to customise it for the entity’s own operations.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.20Exercise 3.3 Highest and best use A response to the IASB’s Exposure Draft 2009/5 Fair Value Measurements, stated: In practical terms we doubt that an asset measured on any other basis than its intended use will provide more useful information to readers. The fact that, say, a site used for production would have a higher market value if it were redeveloped for retail purposes, is not relevant if the entity is not engaged in retail or, more obviously, needs the site in order to carry out its production operations. The risk here is that the fair value measure, as redefined, results in irrelevant information. Required Discuss the issues associated with measuring the fair value of a site currently used for production, but which could be redeveloped for retail purposes. (LO3) Fair value is to be measured by considering the ‘highest and best use’ of the asset. AASB 13 paragraph 28 has the following requirements for determining the highest and best use: it must be physically possible to use the asset for the entity’s purposes. it must be legally permissible, that is, not subject to any legal restrictions (e.g. heritage-listed, zoning regulations). it must be financially feasible and capable of generating sufficient income or cash flows to produce the required investment return. The value to be applied would be the one that maximises the value of the asset or the group of assets and liabilities within which it is to be used. It is not based on the currentuse of the asset, instead, it is based on how the market participants would use the asset. Once the asset’s highest and best use has been established, the next step in determining its fair value is to select one of two valuation premises: in-combination; and stand-alone. In this example, there are two possible uses for the site: 1. Continue to use the site for its current production purposes. In this instance the valuation premise would be the in-combination valuation premise. Both the land and the production facilities would be sold together so that the market participant could continue to use the site for the same production purposes. The fair value of the land would be based on its suitability to continue being used for production. The fair value of any production facilities would be based on their ability to maintain existing production. 2. Redevelop the site for retail purposes. In this instance, the valuation premise is the stand-alone valuation premise. The land on which the production takes place would be sold as a stand-alone asset, separate to the production facilities, which, in turn, would be expected to be demolished to make way for the redevelopment. The production facilities would therefore have a zero fair value and the fair value of the land would be based on the amount that would be received on sale to the redevelopers.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.21Exercise 3.4 Highest and best use Cellar Ltd is in the business of bottling wine, particularly for small wineries that cannot afford sophisticated technical equipment and prefer to concentrate on the growing of the grapes. The white wine and champagne bottles used by Cellar Ltd have a built-in insulation device that keeps the contents of the bottle cold even when held in the hand. In January 2023, Solar-Blue, a company experimenting with energy sources useful in combating climate change, produced a device which, when attached to the outside of a container, could display the actual temperature of the liquid inside. The temperature was displayed by the highlighting of certain colours on the device. How this device could exactly be used with wine bottles had yet to be specifically determined. However, Cellar Ltd believed that its employees had the skills that would enable the company to determine the feasibility of such a project. Whether the costs of incorporating the device into wine bottles would be prohibitive was unknown. Cellar Ltd was concerned that competing wine-bottling companies might acquire the device from Solar-Blue, so it paid $100 000 for the exclusive rights to use the device in conjunction with bottles. Required The accountant wants to measure the fair value of the asset acquired. Discuss the process of determining this fair value. (LO3) The following steps should be followed in the measurement of this fair value: 1. Determine the asset or liability that is the subject of measurement. In this case, the asset is the right to use the temperature-revealing device. 2. Determine the valuation premise consistent with the highest and best use. To measure the fair value of the asset at initial recognition, the highest and best use of the asset is determined on the basis of its use by market participants. There are a number of possible uses for the asset: (a) Cellar Ltd could continue to develop the device for use with bottles - how the device could be used with wine bottles has yet to be specifically determined. Cellar Ltd believes its employees have the skills to be able to investigate this possibility. The fair value measured would then be based on a stand-alone valuation premise and would be based on the price that would be received in a current transaction to sell the device to market participants, assuming that there are other wine makers, or even soft drink companies that would be able to use the device in conjunction with their bottling activities. (b) Cellar Ltd could decide to cease development of the device in relation to its applicability to use with bottles. In valuing the asset, the assumption is then that other market participants would also lock up the device based upon a defensive competitive strategy, reducing the risk that competitors could achieve a significant marketing edge and so substantially increase market share. The appropriate assumption is then a stand-alone valuation premise. (c) Cellar Ltd could consider that the highest and best use of the asset is to cease development of the project as other market participants would also cease development

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.22if they acquired the asset. This may be the case where market participants do not consider that the device will eventually be able to be used with bottles and so the device will not provide a market rate of return if completed. The fair value would be determined by considering what market participants would pay for the rights to use the device for bottles if Cellar Ltd sold this asset to them. 3. Determine the principal (or most advantageous market) for the assets. The most advantageous market would be determined by considering the three scenarios in part 2 above, and taking into account the transport and transaction costs. 4. Determine the valuation technique. This asset is a unique asset. There are no similar assets on the market. Hence a market valuation approach is not applicable. An income valuation approach could be used based on the expected extra cash flows that could be derived from sales once the device has proved to be successful. Given that the device still has to be proved to be useful in relation to bottles, this requires a great deal of judgement. The cost approach would require the determination of the costs required to develop a similar device and have the rights to its use. This would be difficult for Bream Ltd to be able to calculate with any reliability. It is expected that the income valuation approach would be the most applicable method. In deciding to pay Solar-Blue $100 000 for the rights to use the device, it is assumed that Cellar Ltd would have investigated the possible effects on its profits and market share if its competitors had acquired the device from Solar-Blue.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.23Exercise 3.5 ‘In-combination’ valuation premise Palm Ltd acquired a business that used a large number of assets that worked in combination to produce a product saleable in offshore markets. The assets of the business include a computer program that transfers the inputs to the manufacturing process around the assets that work together to produce the output. In measuring the fair value of the computer program, management of Palm Ltd determined that the valuation premise was ‘in-combination’ as the program worked together with other assets in the business. Required Discuss how the various valuation approaches may be applied in the determination of the fair value of the computer program. (LO3) The computer program would provide the best value to market participants through its use with other assets as the program works with other assets in the manufacturing process. Hence, the in-combination valuation premise is appropriate for this asset while the highest and best use for the asset is its current use within the manufacturing process. The marketvaluation approach would not be applicable if the software program is unique. Use of the market valuation approach would require the existence of comparable software assets. The income approach could be applied with a present value technique being used. The cash flows used in this technique would be based on the income stream expected to result from the use of the computer program over its economic life. This may be determined by considering what market participants would pay as a licence fee to be able to use the computer program in their businesses. The costapproach could also be used. This approach would require the estimation of what it would cost currently to construct a substitute computer program that would perform the same tasks as the program being valued. A difficulty in this process could arise if some of the components of the program are unique and difficult to replicate by another market participant.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.24Exercise 3.6 Most advantageous market Asset PYJ is sold in three different active markets. In Market I, the price that would be received is $54; transaction costs are $4 and the transport costs are $6. In Market II, the price that would be received is $52; transaction costs are $4 and the transport costs are $2. In Market III, the price that would be received is $58; transaction costs are $8 and the transport costs are $2. Required 1. What is the most advantageous market for Asset PYJ and what is its fair value? 2. If the principal market for Asset PYJ were Market I, then what would be the fair value of Asset PYJ ? (LO3) 1. The most advantageous market is the one that maximises the amount that would be received to sell the asset after taking into account transaction costs and transport costs. Market I Market II Market III Price that would be received $54 $52 $58 Transaction costs (4) (4) (8) Transport costs (6) (2) (2) Net amount receivable $44 $46 $48 Market III is the most advantageous market as it has the highest net amount receivable of $48. 2. The fair value of an asset is not adjusted for transaction costs as they are specific to the transaction in the specific market and therefore would change depending on the market participant. The transport costs, however, are specific to the location of the asset. Therefore, they doaffect the fair value of an asset. In this example, if the principal market for the asset was Market I, the fair value of the asset would be $48. ($54 less the transport costs of $6).

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.25Exercise 3.7 Characteristics of an assets Dr Mosby owned a large house on a sizeable piece of land in Darwin. His ancestors had been some of the first settlers in the area and the property had been in the family since around 1889. Dr Mosby was 92 years old and had become incapable of taking care of the large property. He wanted to move into a retirement village and so sold his property to the RuralMed Group, which was an association of doctors. The doctors wanted to use the house for their medical practice as it was centrally situated, had many rooms and had an ‘old-world’ atmosphere that would make patients feel comfortable. The house was surrounded by a large group of trees that had been planted by the Anderson family over the years. The trees covered a large portion of the land. RuralMed did not want to make substantial alterations to the house as it was already suitable for a doctors’ surgery. Only minor alterations to the inside of the house and some maintenance to the exterior were required. However, RuralMed wanted to divide the land and sell the portion adjacent to the house. This portion was currently covered in trees. The property sold would be very suitable for up-market apartment blocks. It was a condition of the sale of the property to RuralMed that while Dr Mosby remained alive the trees on the property could not be cut down, as it would have caused him great distress. This clause in the contract would restrict the building of the apartment blocks. However, this restriction would not be enforceable on subsequent buyers of the property if RuralMed wanted to sell the property in the future. A further issue affecting the building of the apartment blocks was that across one corner of the block there was a gas pipeline that was a part of the city infrastructure for the supply of gas to Darwin residents. Required Outline any provisions in AASB 13/IFRS 13 that relate to consideration of restrictions on the measurement of fair values of assets. Describe how the restrictions would affect the measurement of the fair value of the property by RuralMed. (LO3) The relevant paragraphs of AASB 13 are: Paragraph 11: Fair value measurement shall consider the characteristics of an asset or liability e.g. condition, location and restrictions on sale or use. Paragraph 20: although an entity must have access to the market at the measurement date, it does not need to be able to sell the particular asset or transfer the liability on that date if there are restrictions on the sale of the asset. Paragraph 28(b): Highest and best use must be a legally permissible use, taking into account any legal restrictions on the use of the asset. Paragraph BC46 states that restrictions on the sale or use of an asset affect its fair value if market participants would take the restrictions into account when pricing the asset at the measurement date. Paragraph BC100 states that restrictions on the transfer of an asset relate to the marketability of an asset. The inclusion of a restriction preventing the sale of an asset typically results in a lower fair value for the restricted asset than for the non-restricted asset, all other factors being equal.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.26Note that the adjustment for a restriction is not a Level 1 input, and if the adjustment is significant, the fair value measure would be categorised at a lower level of the fair value hierarchy. The asset considered in this case is the house and the land. There are no restrictions on the house but there are restrictions on the land. There are 2 restrictions on the land: the trees cannot be cut down until Dr Mosby dies; and there is a gas pipeline across one corner of the land. The restriction on the cutting down of the trees is enforceable on RuralMed but not on any subsequent buyers of the property. Because the restriction is specific to RuralMed and not to other market participants the restriction is not considered in measuring the fair value of the property – fair value measurement is not entity-specific. Therefore the fair value of the land is based on the higher of its fair value as the grounds of the current property, i.e. on an in-combination valuation premise – and its fair value in exchange to market participants i.e. on a stand-alone valuation premise, considering the use of the property as a residential building site. The restriction on the property in relation to the felling of the trees is not a consideration in this measurement process. The restriction in relation to the gas pipeline is a condition specific to the asset itself in the same way as the condition or location of an asset is specific to an asset. This restriction is transferred to subsequent buyers of the property, the market participants. Measurement of the fair value of the property must then take into consideration the existence of the restriction and the effect on the valuation of the property. For example, if a building cannot be built over the pipeline as the gas authorities may need access to the pipeline, then this restricts the size of any building that could be built on the property. This affects the value of the land regardless of whether an in-use or an in-exchange valuation premise is applied.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.27Exercise 3.8 Market participants Brumby Ltd recognises that the concept of ‘market participants’ is an important part of the measurement of fair value. It has determined that market participants are buyers and sellers in the principal (or most advantageous) market for the asset or liability that have the following characteristics: They are independent of each other. They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction. They are able to enter into a transaction for the asset or liability. They are willing to enter into a transaction for the asset or liability. Required The group accountant for Brumby Ltd has asked for your advice on the following matters. Provide a response to the group accountant, referring to relevant paragraphs of AASB 13/IFRS 13. 1. Does an entity have to specifically identify market participants? 2. How should an entity determine what assumptions a market participant would make in measuring fair value? 3. If an entity is unwilling to transact at a price provided by a market participant, can that price be disregarded? (LO3) 1. According to AASB 13 paragraph 23, an entity does not have to identify specific market participants. Instead the entity should consider what type of entities normally trade in these markets i.e. what are the characteristics of market participants that would generally transact for the asset in question? The object is to determine what factors/assumptions would be made or considered by the entities that trade in these markets. 2. Fair value is not the value specific to the reporting entity, but is a market-based measurement. If market participants would consider adjustments for liquidity, uncertainty and/or non-performance risk then the fair value determined must take these into account. In general the reporting entity should rely on market observable data. Where this is not available an entity can use its own data as a basis for its assumptions. However, adjustments should be made to the entity’s own data if readily available market data indicates that market participants would differ from the assumptions specific to that reporting entity. An entity needs to consider: the asset itself and any specific characteristics of the asset, the features of the principal (most advantageous) market, and the market participants themselves. 3. Determination of fair value is based on a transaction between market participants at the measurement date, not between the reporting entity and another market participant. Market participants are assumed to act in their own economic best interest (paragraph 22) i.e. in a manner consistent with the objective of maximising the value of their business.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.28Market participants must be willing to enter into a transaction i.e. they are motivated to do so but are not compelled or forced to do so. Hence the question to be answered is why is the entity unwilling to transact at that price? If other participants are willing to transact at that price and that is the current price in the market then that price cannot be disregarded. Hence, if the entity prefers not to trade for a period of time but rather prefers to hold onto the asset(s) until the market picks up then it cannot use this reason to disregard the price.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.30Exercise 3.10 Liability held as an asset On 1 January 2022, Kangaroo Ltd issues at par $2 million A-rated 5-year fixed rate debt securities with an annual coupon interest of 8%. On 31 December 2022, investments in the debt securities are trading as an asset in an active market at $1 900 per $2 000 of par value after payment of accrued interest. Kangaroo Ltd uses the quoted price of the asset in an active market as its initial input into the fair value measurement of the debt securities liability. Required Determine the fair value of the debt securities at 31 December 2022. What other factors may need to be included when determining the fair value of the liability? (LO3 and LO4) The debt securities are trading in an active market, therefore, the fair value of the liability is to be based on the quoted market price at 31 December 2022. The liability would be reported in Kangaroo Ltd’s statement of financial position at 31 December 2022 as $1 900 000. That is, $1 900 x ($2 000 000 / $2 000). Other considerations would be whether or not the quoted price of $1 900 per $2 000 includes the effect of factors that are not applicable to the fair value of a liability - for example, the effect of third-party credit ratings.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.31Exercise 3.11 Present value technique: decommissioning liability On 1 July 2022, Panda Ltd assumed a decommissioning liability in a business combination. The entity is legally required to dismantle and remove an offshore oil platform at the end of its useful life, which is estimated to be 10 years. If Panda Ltd were contractually allowed to transfer its decommissioning liability to a market participant, Panda Ltd considers that the market participant would need to take into account the following inputs. Expected labour costs: $152 500 Allocation of overhead costs: $115 000 Contractor’s profit margin: 20% of total labour and overhead costs Inflation factor: 4% p.a. for 10 years Market risk premium paid for undertaking risks involved: 5% Time value of money, represented by the risk-free rate: 5% Non-performance risk including Panda Ltd’s own credit risk: 3.5% Required Determine the fair value of the decommissioning liability at 1 July 2022 using the present value technique. (LO4) The fair value of Panda Ltd’s decommissioning liability is calculated as follows: Expected cash flows ($) at 1 July 2022 Expected labour costs 152 500 Allocated overhead costs 115 000 Contractor’s profit margin [0.2 x ($152 500 + $115 000)] 53 500 Expected cash flows before inflation adjustment 321 00 Inflation factor (4% for 10 years = 1.0410) 1.4802 Expected cash flows adjusted for inflation 475 144 Market risk premium (0.05 x $475 144) 23 757 Expected cash flows adjusted for market risk 498 901 Expected present value (discount rate 8.5% for 10 years = 0.4423) $220 664 Therefore, the fair value to be reported in Panda Ltd’s financial statements is $220 664.

Chapter 4: Fair value measurement© John Wiley and Sons Australia Ltd, 2023 4.32Exercise 3.12 Valuation of liabilities and non-performance risk Wallaby Ltd and Dingo Ltd enter into a contractual obligation to pay cash of $50 000 to Bandicoot Ltd in 5 years’ time. Wallaby Ltd has a AA credit rating and can borrow at 4%. Dingo Ltd has a BBB credit rating and can borrow at 10%. At initial recognition, the fair value of the liability of each entity must reflect the credit standing of that entity. Required 1. Determine the fair values of the contractual obligations of Wallaby Ltd and Dingo Ltd to Bandicoot Ltd on initial recognition. 2.Assume Wallaby Ltd’s credit rating decreases to AA– by the end of the first year and its borrowing rate changes to 6%, while Dingo Ltd’s credit rating improves to BB and its borrowing rate changes to 8%. Determine the fair value measurements of the contractual obligations after based on the new credit ratings. If the change in fair value of the liability was recognised, would a decline in the credit rating give rise to a gain or loss?(LO4) 1. Wallaby Ltd would calculate the fair value of its obligation based on its own ability to pay the debt as affected by its own credit risk. Therefore, the fair value of Wallaby Ltd’s liability is calculated using the present value technique. $50 000 x 0.8219 (PV of single amount at the end of 5 years at 4%) = $41 095 The fair value of the contractual obligation for Dingo Ltd is calculated the same way as that for Wallaby Ltd except the interest rate of 10% must be used. Therefore, the fair value of Dingo Ltd’s liability is calculated using the present value technique. $50 000 x 0.6209 (PV of single amount at the end of 5 years at 10%) = $31 045 2. If Wallaby Ltd’s credit rating decreases and its borrowing rate changes to 6%, the fair value of its contractual obligation will be calculated as: $50 000 x 0.7473 (PV of single amount at the end of 5 years at 6%) = $37 365 If Dingo Ltd’s credit rating improves and its borrowing rate changes to 8%, the fair value of its contractual obligation will be calculated as: $50 000 x 0.6806 (PV of single amount at the end of 5 years at 8%) = $34 030 When an entity’s credit rating decreases its cost of borrowing increases. The fair value of a liability based on the present value technique may decrease as a result, giving rise to a gain from the re-measurement.

Solutions manual to accompany Financial reporting 4e by Loftus et al.. Not for distribution in full. Instructors may post selected solutions for questions assigned as homework to their LMS.© John Wiley and Sons Australia Ltd, 2023 4.33Exercise 3.13 Present value technique: debt obligation On 1 January 2022, Koala Ltd issued at par in a private placement $2 million BBB-rated 5-year fixed rate debt securities with an annual 10% interest coupon rate. At 31 December 2022, Koala Ltd still carried a BBB credit rating. Market conditions, including interest rates and credit spreads for a BBB-quality credit rating and liquidity, remain unchanged from the date of issue. However, Koala Ltd’s credit spread had deteriorated by 50 basis points because of a change in its risk of non-performance. If the debt securities were issued at 31 December 2022, they would be priced at an interest rate of 10.5%. Required Determine the fair value of the debt securities at 31 December 2022 using the present value technique. (LO5) The fair value of the debt securities should reflect the price that would be paid by Koala Ltd to transfer the liability to market participants at 31 December 2022 under the current market conditions. Due to the change in the credit risk the appropriate measure of fair value for the debt securities is the present value technique. Koala Ltd would assume that a market participant would use the following inputs: The annual interest payments: 10% of $2 million = $200 000 Principal amount: $2 000 000 Term: 5 years At 31 December 2022 the interest rate is 10.5%. Present Value $200 000 x 3.7429 (PV of annuity at 10.5% over 5 years) $748 580 $2 000 000 x 0.6070 (PV of lump sum at 10.5% and end of 5 years) $1 214 000 Total present value of debt securities $1 962 580 The liability would therefore be reported in Koala Ltd’s statement of financial position at 31 December 2022 as $1 962 580.