Summary and Application of PSAK 68

1. Aim/Purpose

The purpose of is to define fair value, measurement framework, and requires disclosure of fair value. Fair
value is a measure of an asset and a liability based on market value. The objective of measuring fair value
is to estimate the price at which a regular transaction to sell assets or transfer the liabilities that occur
between market participants at current market prices. Fair value is measured using assumptions used by
market participants when determining asset prices or liabilities. Assets and liabilities are the main subjects
of fair value measurement because assets and liabilities are the main subjects of accounting
measurement.

2. Scope

Measurement of fair value or disclosure of fair value less costs to sell is applicable when the measurement
and disclosure requirements in this statement are not applied (Exception of scope of PSAK 68) such as
stock-based payment transactions within the scope of PSAK 53 (Share-Based Payment ), Lease
transactions within the scope of PSAK 30 (Leases), Measurements which are equivalent to fair value but
are not fair - values, such as net realizable value in PSAK 14 about Inventory or value in use and value in
use in PSAK 48 about Impairment of Assets . Disclosures not referred in this scope are assets measured at
fair value in accordance with PSAK 24 (Employee Benefits), Investment of retirement benefit program
measured at fair value in accordance with PSAK 18 (Accounting and Reporting of Retirement Benefit
Plans), and the recoverable amount of assets fair value after deducting disposal fee in accordance with
PSAK 48 (Impairment of Asset Value).

3. Definition

Fair value is the price to be received in order to sell the asset or to transfer a liability in the transaction
between market participants on the date of measurement.

4. Measurement of fair value on assets and liabilities

When measuring fair values of entities, market participants are required to calculate the characteristics
of an asset and liability to determine the asset's price and the value at the date of measurement. Those
characteristics are the condition and location of assets and restrictions, if any, upon the sale or use of
assets. Measurement of assets and liabilities at fair value consists of either independent assets or liabilities
(financial instruments or nonfinancial assets), and a group of assets, a group of liabilities or a group of
assets and liabilities (cash or business income). Assets and liabilities have these characteristics depending
on the unit of account. Unit of account is determined in accordance with the statements which require or
allow the measurement of fair value.

5. Highest and Best Usage for Nonfinancial Asset

Measuring the fair value of nonfinancial assets calculates the ability of market participants to generate
economic benefits by using assets in their highest and best use. It is calculated based on physically
possible, legally permissible and financially feasible. Physically possible use to calculate the physical
characteristics of an asset that market participants calculate when determining asset prices such as
location or property size (physically possible). Legally permissible use takes account of the legal
restrictions on the use of assets to be calculate by market participants when determining asset prices such
as legally permissible area regulations. Subsequently, financially viable uses calculation whether the use
of physically enabled assets is legally permitted to generate sufficient cash income or cash flow to
generate the required investment returns of market participants from investing in the asset.

6. Application of Liabilities and Equity Instruments

Fair value measurement assumes that nonfinancial liabilities or liabilities, or equity instruments owned by
the entity are transferred to market participants on the date of measurement. The transfer of a liability
or an equity instrument has its own entity assuming that the liability will remain outstanding and the
transferee will accept the obligation. Then, the equity instruments owned by the entity itself will continue
to circulate and the market participants who receive the transfer will take over the rights and
responsibilities associated with the instrument. An entity measures the fair value of a liability or an equity
instrument from the perspective of a market participant having a liability or equity instrument owned by
the entity itself identical as an asset on the date of measurement. The entity measures the fair value of a
liability or equity instrument using an active market. if the active market price is not available, the entity
can measure using the income approach and the market approach.

7. Application to Financial Assets and Financial Liabilities

The company that manages the group of financial assets and liabilities is based on its net exposure to
market risk or credit risk, the entity is allowed to measure the fair value based on the price to be sold to
net long position (Assets) for certain exposure risk or paid to transfer to net short position (liability) on
the date of measurement under current market conditions. This can be done if the group of financial
assets and financial liabilities based on the entity's net exposure in accordance with the risk management
or documented investment strategy of the entity. The entity shall then provide information on the basis
of the group of financial assets and liabilities to the member of the entity's key management as defined
in PSAK 7 (Disclosure of Contracting Parties) and measure at fair value in the statement of financial
position at the end of each reporting period.

8. Input on Assessment Techniques

Assessment techniques used to measure fair value maximize the use of relevant observable outputs and
minimize the use of unobservable inputs such as exchange markets, dealer markets, brokerage markets,
and inter-principal markets. In such characteristics resulted in the application of adjustments such as
premiums or discounts. However, fair value measurements do not include premiums and discounts that
are inconsistent with account units. Entities use level 1 input prices without adjustment when measuring
fair value.
 9. Application on Investment Property

Property (land or building-or part of a building-or both) controlled (by the owner or lessee through a
finance lease) to generate rentals or to increase value, or both, and not to Use in the production or
procurement of goods or services or for administrative purposes or Sold in daily business activities.
Property Recognition Criteria Same as PSAK 16 which Have economic benefits in the future can be
measured reliably. After initial measurement the company may choose to use the Cost method at which
the acquisition cost less accumulated depreciation or the fair value method whose property value is at
the reporting date, the difference in value changes is recognized in the statements of comprehensive
income, investment property assets are not depreciated.

The entity bought the building for 5,200 million on 1/1/2011.

Entities use fair value model.

Fair value on 31/12/2011 is 5,500

Fair value on 31/12/2012 is 5,400

 1/1/2011 Building - Investment property 5.200

Cash 5.200

 31/12/2011 Building - Investment property 300

Profit increase in value 300

 31/12/2012 Loss of impairment 100

Building - Investment property 100

10. Application on Financial Instrument

Fair value measurement assumes financial liabilities or non-financial liabilities or financial instruments
owned by the entity itself (for example share ownership issued as payment in a business combination) is
transferred to market participants on the date of measurement. The transfer of liability or equity
instruments of the entity itself assumes that the liability will remain outstanding and the transferee
marketer is required to fulfill the obligation. The liability will not be settled with the opponent or
terminated on the date of measurement. Moreover, the entities own equity instruments will continue to
be outstanding and the transferee market actor will take over the rights and responsibilities associated
with the instrument. The instrument will not be canceled or terminated on the date of measurement. At
the time of initial recognition of financial assets or financial liabilities, the entity measures at fair value. In
the event that financial assets or financial liabilities are not measured at fair value through profit or loss,
the fair value plus transaction costs are attributable directly to the acquisition or issuance of financial
assets or such financial liabilities.
For example Loans with fee.

Banks lend money to the bank of 5,000 million, which will be repaid in 5 years. With annual 5% Paid
Interest and a market interest rate on 8% similar loans. ABC will pay the Bank for a credit fee of 600 million.
The present value with an 8% discount rate on a 5,000 million loan of 4,400 million. And the question
would be how much is the loan recorded at the time of initial recognition. 5,000 million or 4,400 million?