Financial Reporting · Ind AS 113 Fair Value Measurement

Fair Value Measurement Approach under Ind AS 113: Asset, Market and Price

Updated 5 October 2026 · Fact-checked

Under Ind AS 113, fair value is the exit price for the particular asset or liability, in an orderly transaction between market participants at the measurement date. You identify the item and unit of account, find the principal (or else most advantageous) market, use participant assumptions, adjust for transport cost, and ignore transaction costs.

Understand Fair Value Measurement Approach: Asset, Market and Price

Fair value under Ind AS 113 is a market-based measure, not an entity-specific one. It is the price you would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. It is an exit price. It does not matter whether the entity plans to sell.

The measurement starts with the particular asset or liability. You consider its characteristics that market participants would consider, such as condition, location and restrictions on sale or use. The unit of account decides what is measured: a single share, a block of shares, or a group of assets. The unit of account comes from the Ind AS that requires the measurement. Ind AS 113 does not set it.

Next, find the market. The principal market is the market with the greatest volume and level of activity for the item. If there is a principal market, fair value is the price in that market, even if a better price is available elsewhere. If there is no principal market, use the most advantageous market. This is the market that maximises the net amount received for the asset, after transaction costs and transport costs. Unless evidence suggests otherwise, the market the entity normally uses is assumed to be the principal market. The entity must have access to the market at the measurement date.

Fair value uses the assumptions market participants would use. These are buyers and sellers who are independent, knowledgeable, able to transact and willing to transact (not forced). You assume they act in their own economic best interest. Your own intentions do not change the answer.

Costs are treated in two ways. Transaction costs are not a feature of the asset, so they are not deducted from the price used for fair value. But you use them to identify the most advantageous market. Transport costs are different. If location is a characteristic of the asset, the price in the principal (or most advantageous) market is adjusted for the cost of moving the asset to that market.

Key rules to remember

Fair value (definition): Fair value = price received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date; It is an exit price and market-based, not entity-specific.
Fair value when a principal market exists: Fair value = price in principal market − transport costs; Transaction costs are not deducted. Use this even if another market gives a higher price.
Fair value when there is no principal market: Fair value = price in most advantageous market − transport costs; Transaction costs are not deducted from the fair value.
Most advantageous market test: Net amount = price − transport costs − transaction costs (choose the market with the highest net amount); For liabilities, choose the market that minimises the net amount paid. This test only selects the market.
Principal market presumption: Principal market = market the entity normally uses to sell the asset, unless evidence suggests another market; The entity needs no exhaustive search, but must consider all reasonably available information.

How to solve Fair Value Measurement Approach: Asset, Market and Price questions

Use this order for any Ind AS 113 case on the measurement approach. Show each step in the answer, because marks are given for the reasoning as well as the number.

1Identify the particular asset or liability and its relevant characteristics, such as condition, location and restrictions.
2Fix the unit of account as required by the Ind AS that applies the measurement (for example, a single share or a whole group).
3Identify the principal market, being the one with the highest volume and activity that the entity can access at the measurement date. If it exists, use it, even if another market has a higher price.
4If there is no principal market, compute net amounts (price − transport − transaction costs) for each accessible market and pick the highest for an asset.
5Take the price in the chosen market. Deduct transport costs if location is a characteristic of the asset. Do not deduct transaction costs.
6State that market participant assumptions apply, not the entity's intentions or entity-specific synergies.
7Conclude with the fair value and, where useful, state what the net proceeds would be after transaction costs.

Quickest way: Market, then transport, then ignore transaction costs

When to use it: Use this for numerical MCQs and short cases with two or more markets, prices and costs listed.

Check if the case names a principal market (highest volume). If yes, work only on that market.
If not, compute price − transport − transaction costs for each market. The highest net is the most advantageous market.
For the fair value, take that market's price − transport costs only.
Never subtract transaction costs from the final fair value figure.

Common mistakes in Fair Value Measurement Approach: Asset, Market and Price

Choosing the market with the highest price as the principal market.
Students link 'best' with the highest price.
Fix: The principal market is the one with the greatest volume and activity. Use the most advantageous market only when there is no principal market.
Deducting transaction costs from fair value.
Students think fair value should be the net cash received.
Fix: Transaction costs are not part of fair value. Use them only to select the most advantageous market.
Ignoring transport costs.
Students treat transport costs in the same way as transaction costs.
Fix: If location is a characteristic of the asset, adjust the market price for the cost of transporting it to the market.
Using the entity's own intention or plans to decide the price.
Students value what the entity expects to do with the asset.
Fix: Use the assumptions of market participants acting in their economic best interest. The entity's intention to hold or sell is irrelevant.
Choosing a market the entity cannot access on the measurement date.
Students focus on price and volume and skip the access test.
Fix: The entity must be able to access the market at the measurement date. Only then can it be the principal or most advantageous market.

Worked examples

Example 1

Aarav Ltd holds a commodity lot. At the measurement date it can access two markets. Market X is the one it normally uses and has the highest volume: price ₹1,000 per unit, transport cost ₹40 per unit, transaction cost ₹30 per unit. Market Y has lower volume: price ₹1,020 per unit, transport cost ₹60 per unit, transaction cost ₹50 per unit. Find the fair value per unit.

Show the solution

Both markets are accessible. Market X has the greatest volume and activity, so it is the principal market.
Because a principal market exists, the most advantageous market test is not needed, even though Y has a higher price.
Take the price in X: ₹1,000.
Location is a characteristic of the commodity, so deduct transport cost of ₹40: 1,000 − 40 = ₹960.
Do not deduct the transaction cost of ₹30. It is not part of fair value.

Answer: Fair value is ₹960 per unit. Net proceeds after transaction costs would be ₹930, but that figure is not fair value.

Example 2

Meera Ltd holds an asset and has no principal market. It can access Market P and Market Q. Market P: price ₹5,000, transport cost ₹200, transaction cost ₹300. Market Q: price ₹5,150, transport cost ₹350, transaction cost ₹250. Identify the most advantageous market and the fair value.

Show the solution

With no principal market, use the most advantageous market.
Net amount in P = 5,000 − 200 − 300 = ₹4,500.
Net amount in Q = 5,150 − 350 − 250 = ₹4,550.
Q gives the higher net amount, so Q is the most advantageous market.
Fair value uses Q's price less transport cost only: 5,150 − 350 = ₹4,800.
Transaction cost of ₹250 is not deducted.

Answer: Market Q is the most advantageous market, and fair value is ₹4,800.

Exam tips

Write the market decision in words first (principal or most advantageous), then the calculation. Examiners award marks for the logic.
In every numerical case, ask: is a principal market named? That decides if you compute net amounts at all.
Keep a clear line: transport costs adjust the price, transaction costs only help choose the market.
In theory answers, mention that the entity must have access to the market and that participants are independent, knowledgeable, able and willing.
In MCQs, watch for distractors that deduct transaction costs or choose the highest price market.

Practice questions from Ind AS 113 Fair Value Measurement

Fair Value Measurement Approach: Asset, Market and Price in other exams

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

CMA FinalFair Value Measurement Approach: Asset, Market, Participants

Fair Value Measurement Approach: Asset, Market and Price: frequently asked questions

What is the difference between principal market and most advantageous market?

The principal market is the one with the greatest volume and activity for the asset or liability. The most advantageous market is the one that gives the best net amount after transport and transaction costs. You use the principal market if it exists, and the most advantageous market only if it does not.

Are transaction costs deducted in Ind AS 113 fair value?

No. Transaction costs are not a characteristic of the asset, so they are not deducted from the price. They are only used to find the most advantageous market.

Are transport costs deducted from fair value?

Yes, when location is a characteristic of the asset. You adjust the price in the principal or most advantageous market for the cost of moving the asset to that market.

Who are market participants under Ind AS 113?

They are buyers and sellers in the principal or most advantageous market who are independent of the entity, knowledgeable, able to enter the transaction and willing to do so. You assume they act in their own economic best interest.