Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing, unrelated parties in an arm's length transaction.
Categories of valuation at fair value of financial assets and liabilities measured at fair value in the statement of financial position
On the basis of applied methods of valuation at fair value, the Group classifies financial assets and liabilities to the following categories:
Level 1: Financial assets and liabilities whose fair value is stated directly at prices quoted (not adjusted) from active markets for identical assets and liabilities. The Group classified to that category the following items:
- debt securities valued at fixing from Bondspot platform.
- debt and equity securities in the Brokerage House (Dom Maklerski) portfolio.
- debt and equity securities which are traded on regulated market.
Level 2: Financial assets and liabilities whose fair value is determined with use of valuation models where all significant entry data are observable on the market directly (as prices) or indirectly (based on prices). The Group classified to that category the following items:
- debt securities valuated to the curve or those whose price comes from Bloomberg platform or brokerage pages in Reuters system but for which market is not active,
- non-treasury debt securities issued by other financial entities, local government bodies, non-financial entities quoted on the stock exchange or not traded on a regulated market,
- securities issued by Ministry of Finance of Ukraine in KREDOBANK SA portfolio,
- derivative instruments.
- Level 3: Financial assets and liabilities whose fair value is determined with use of valuation models, for which available data is not derived from observable markets. The Group classified to this category shares not quoted on Warsaw Stock Exchange (WSE), equity securities portfolio and debt securities portfolio of KREDOBANK SA.
Note 2 ‘Summary of significant accounting policies and estimates and judgements’ provides detailed information on the method of fair value calculation.
The table below presents a classification of financial assets and liabilities presented in the financial statements at fair value divided into three levels of the fair value hierarchy as at 31 December 2011: