You are the financial controller of Omega, a listed company which prepares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Your managing director, who is not an accountant, has recently attended a seminar and has prepared a number of questions for you concerning two issues raised at the seminar:

(a) ‘I was confused regarding a number of references to fair value and a new accounting standard on the subject. I thought financial statements were prepared on a historical cost basis. Please give me three examples of where fair value might be relevant for us. I was told the new standard removed an inconsistency in the definition of fair value and applied three levels of input into the measurement of fair value. Please explain how the new standard defines fair value and what the previous inconsistency was. Please also explain each level of input and how each level is applied in measuring the fair value of a particular item in the financial statements.’ (10 marks)

Required:
Provide answers to the questions raised by the managing director.

Note: The mark allocation is shown against each of the two issues above