Exercise 3.3 ★ CHARACTERISTICS OF AN ASSET Mr Merman owned a large house on a sizeable piece of land in London. The property had been in his family since around 1889. Mr Merman was 92 years old and was incapable of taking care of the large property. He wanted to move into a retirement village and so sold his property to the MedSea 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 a charming ‘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 Merman family over the years. The trees covered a large portion of the land. MedSea did not want to make large alterations to the house as it was suitable for a doctors’ surgery. Only minor alterations to the inside of the house and some maintenance to the exterior were required. However, MedSea wanted to divide the land and sell the portion adjacent to the house; the portion currently being covered in trees. The property sold would be very suitable for up-market apartment blocks. One of the conditions of the sale of the property to MedSea was that, while Mr Merman remained alive, the trees on the property could not be cut down as it would have caused him great distress to see such alterations to the family home. 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 MedSea 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 facilities to London residents.

Required Outline any provisions in IFRS 13 that relate to consideration of restrictions on the measurement of fair values of assets, and how in the situation described above the restrictions would affect the measurement of the fair value of the property by MedSea.