Skip to content

CA Final · Financial Reporting

Ind AS 113 Fair Value Measurement: CA Final Financial Reporting Chapter Guide

Ind AS 113 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To solve questions, identify the unit of account, principal market, and valuation premise. Then pick a technique, maximise observable inputs, and place the result in Level 1, 2 or 3.

What this chapter covers

Ind AS 113 does not tell you when to use fair value. Other standards do that, such as Ind AS 109, Ind AS 16, Ind AS 40, Ind AS 102 and Ind AS 103. Ind AS 113 tells you how to measure it and what to disclose. It is a measurement standard, so every question follows a fixed logic: what is being measured, in which market, by whom, and with what inputs.

The chapter builds in layers. You start with the definition and scope. Next come the measurement approach (asset or liability, principal market, market participants, transaction price) and the special rules for non-financial assets (highest and best use) and for liabilities and own equity. Then you learn initial recognition, the three valuation approaches, the three-level hierarchy and the disclosures.

This chapter links to many others in Paper 1. Business combinations need fair value of assets acquired and consideration. Financial instruments need fair value for FVTPL and FVOCI. Investment property and revaluation under Ind AS 16 use it. Share-based payment and impairment (fair value less costs of disposal) use it too. If you master this chapter, those chapters become easier.

Fair value shows up across the paper, so a weak grasp of Ind AS 113 costs marks in several chapters, not just one. The standard also suits case-scenario MCQs, because a short fact pattern can test principal market, highest and best use or the level of an input. In written answers, you can score by applying the paragraph logic step by step to the facts. The theory is compact, and the same few ideas repeat, so effort here pays back well.

Ind AS 113 Fair Value Measurement: topics in the order to study them

  1. 1Ind AS 113 Scope, Objective and Definition of Fair ValueStart here to learn what the standard covers, what it excludes, and the exit price definition that everything else builds on.
  2. 2Fair Value Measurement Approach: Asset, Market and PriceNext, learn the framework: unit of account, principal or most advantageous market, market participants, and why transaction costs are not part of fair value.
  3. 3Highest and Best Use and Valuation Premise for Non-Financial AssetsThis applies the measurement framework to non-financial assets and needs the market participant view you just learnt.
  4. 4Fair Value of Liabilities and Entity's Own Equity InstrumentsIt extends the same exit-price idea to liabilities and own equity, using the transfer concept and non-performance risk.
  5. 5Fair Value at Initial RecognitionOnce you can measure fair value, you can compare it with transaction price and see when day-one differences arise.
  6. 6Valuation Techniques: Market, Cost and Income ApproachesTechniques are easier after you know what is being measured and from whose viewpoint, and they lead into inputs.
  7. 7Fair Value Hierarchy: Level 1, 2 and 3 InputsThe hierarchy classifies the inputs used in the techniques, so study it right after them.
  8. 8Ind AS 113 DisclosuresDisclosures depend on the level of each measurement, so they come last.

How to prepare Ind AS 113 Fair Value Measurement

Treat this as a logic chapter, not a memory chapter. Learn the sequence of questions, then practise it on short cases.

  1. Read the standard's flow once: scope, definition, asset or liability, market, participants, price, technique, hierarchy, disclosure. Write it as a one-page checklist.
  2. For each topic, write the rule in your own words in two or three lines, then add one short example from a case you have seen.
  3. Practise non-financial asset cases by listing the uses that are physically possible, legally permissible and financially feasible, and then compare the values.
  4. Solve numerical questions in a fixed order: identify the unit of account, pick the market, take the price in that market, adjust for transport cost only if location is a characteristic of the asset, do not deduct transaction costs, and state the result.
  5. Make a small table of inputs for each level, with two examples each, and practise classifying inputs. Remember the level is set by the lowest-level input significant to the whole measurement.
  6. Revise the disclosures by grouping them: recurring versus non-recurring, and Level 1, 2 and 3.
  7. Finish with case-scenario MCQs and at least two written answers, using the form: rule, facts, conclusion.

Common mistakes in Ind AS 113 Fair Value Measurement

  • Treating fair value as an entry price or the price the entity would personally get.

    Fix: Always ask: what would a market participant pay or receive at the measurement date for this item in an orderly transaction?

  • Deducting transaction costs from fair value.

    Fix: Keep the two separate. Fair value excludes transaction costs, while transport costs are adjusted only when location is a characteristic of the asset.

  • Choosing the most advantageous market when a principal market exists.

    Fix: Use the principal market, which is the market with the greatest volume and level of activity for the asset or liability, provided the entity can access it at the measurement date. Move to the most advantageous market only if there is no principal market.

  • Assuming current use is always the highest and best use.

    Fix: Test the alternative uses against the three conditions and measure on the use that gives the highest value to market participants. Current use is presumed only if no market evidence suggests otherwise.

  • Mixing up the level of the hierarchy with the technique used.

    Fix: Classify by the inputs, not by the technique. Check each significant input, then assign the level of the lowest significant one.

  • Writing disclosures as a memorised list without linking them to the case.

    Fix: Identify whether the measurement is recurring or non-recurring and what level it falls in, then write only the disclosures that apply to those facts.

Last-day revision: Ind AS 113 Fair Value Measurement

  • Fair value = exit price: price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
  • It is a market-based measure, not entity-specific; use the assumptions market participants would use.
  • Use the principal market; if there is none, use the most advantageous market.
  • The price in the principal market is adjusted for transport costs only if location is a characteristic of the asset. Transaction costs are not deducted.
  • Highest and best use must be physically possible, legally permissible and financially feasible.
  • For liabilities, assume transfer to a market participant, and the liability's non-performance risk, including own credit risk, is reflected.
  • Fair value at initial recognition often equals the transaction price, but not always, for example in related party deals or forced sales.
  • Three approaches: market, cost (current replacement cost) and income (converts future amounts such as cash flows, income or expenses to a single current, discounted amount).
  • Maximise relevant observable inputs and minimise unobservable ones.
  • Level 1 is unadjusted quoted prices for identical items in an active market; Level 2 is other observable inputs; Level 3 is unobservable inputs.
  • The whole measurement is classified at the level of the lowest-level input that is significant to it.
  • Disclosure is more extensive for Level 3 and for recurring measurements.

Ind AS 113 Fair Value Measurement practice questions

Ind AS 113 Fair Value Measurement in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Ind AS 113 Fair Value Measurement: frequently asked questions

Is Ind AS 113 a big chapter for CA Final FR?

It is compact in theory, but its ideas are used in business combinations, financial instruments, investment property and impairment. So you should know it well even though the chapter itself is short.

Do I need to memorise every Ind AS 113 disclosure?

No. Learn the structure first: recurring versus non-recurring, and Level 1, 2 and 3. Then remember the extra items for Level 3, such as the reconciliation and the unobservable inputs. Apply only what the case facts need.

How do I decide between Level 2 and Level 3?

Look at the inputs. If all significant inputs can be observed directly or indirectly in the market, the measurement is Level 2. If a significant input is unobservable, it is Level 3.

Does fair value always equal the transaction price at initial recognition?

Not always. It usually does, but the transaction price may differ from fair value in cases such as related party transactions, forced transactions or a different unit of account. Check the facts in the case before you conclude.

How should I answer a written question on Ind AS 113?

State the relevant rule, apply it to the facts step by step, and end with a clear conclusion. For numbers, show each working so that marks are earned even if the final figure is different.