Financial Reporting · Ind AS 113 Fair Value Measurement

Ind AS 113 Scope, Objective and Definition of Fair Value

Updated 5 October 2026 · Fact-checked

Ind AS 113 defines fair value as the price that would be 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, not an entry price. To solve a question, check scope, identify the asset or liability, then apply the exit-price definition.

Understand Ind AS 113 Scope, Objective and Definition of Fair Value

Ind AS 113 does not tell you when to use fair value. Other standards do that, such as Ind AS 109, Ind AS 16 or Ind AS 40. Ind AS 113 tells you how to measure fair value once another standard requires or permits it, and what to disclose.

The standard has three aims. It defines fair value, gives a single framework for measuring it, and sets disclosure requirements. This removes the need for each standard to have its own meaning of fair value.

Fair value is a market-based measure, not an entity-specific one. You ask what a market participant would do, not what your entity wants. The definition is an exit price: the price received to sell an asset or paid to transfer a liability. It is measured at the measurement date under current market conditions.

The price comes from an orderly transaction between market participants. An orderly transaction allows normal marketing time. A forced sale or distress sale is not orderly. Market participants are buyers and sellers in the principal (or most advantageous) market who are independent, knowledgeable, able and willing to transact.

An entry price is what you paid to acquire an asset or received to assume a liability. An exit price is what you would get on selling it or pay on transferring it. They may be equal at initial recognition, but not always. Ind AS 113 does not assume they are equal.

Key rules to remember

Definition of fair value: 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; This is an exit price. Quote this wording in theory answers.
Scope: applies to: Fair value measurements and disclosures required or permitted by other Ind AS (with exclusions); The standard applies to both initial and subsequent measurement when another Ind AS requires or permits fair value.
Scope exclusions: both measurement and disclosure: Share-based payment transactions (Ind AS 102); leasing transactions within Ind AS 116; measurements similar to fair value but not fair value (net realisable value in Ind AS 2, value in use in Ind AS 36); Both the measurement and the disclosure requirements of Ind AS 113 are excluded for these items. Ind AS 113 does not apply to leasing transactions within Ind AS 116. It still applies to fair value measurements required for other purposes, for example the fair value of plan assets, or the fair value of an underlying asset when another standard needs it, because those are not leasing transactions. Net realisable value and value in use are measurements similar to fair value but not fair value. Fair value less costs of disposal is not excluded.
Disclosure-only exemptions: Disclosures of Ind AS 113 are not required for: plan assets at fair value under Ind AS 19; retirement benefit plan investments at fair value under Ind AS 26; assets whose recoverable amount is fair value less costs of disposal under Ind AS 36; These are separate from the exclusions above. Measurement rules of Ind AS 113 still apply to these items. Fair value less costs of disposal under Ind AS 36 is measured using Ind AS 113, and only its disclosures are exempt. Value in use is the excluded measure.
Fair value vs entry price: Fair value (exit price) ≠ transaction price (entry price) by default; Check whether the transaction price represents fair value at initial recognition.

How to solve Ind AS 113 Scope, Objective and Definition of Fair Value questions

Use this sequence for any scope or definition question on Ind AS 113.

1Identify the item being measured: an asset, a liability or the entity's own equity instrument.
2Check which standard requires or permits fair value. Ind AS 113 only supplies the method.
3Test the item against the exclusions: Ind AS 102, leasing transactions within Ind AS 116, and measures similar to fair value but not fair value, such as NRV or value in use. Ind AS 113 measurement and disclosure requirements do not apply to the excluded items. A fair value needed for another purpose, even for a leased asset, is not a leasing transaction and stays within Ind AS 113.
4Check whether the item falls in a disclosure-only exemption, such as plan assets or fair value less costs of disposal under Ind AS 36. Measurement under Ind AS 113 still applies to these.
5Identify the measurement date and the market participants, not the entity's own intentions.
6Apply the exit-price definition: what would be received to sell or paid to transfer, in an orderly transaction.
7Exclude forced or distressed sale prices and entry-price thinking.
8State the conclusion in provision, facts, conclusion form.

Quickest way: Three-question scope and definition check

When to use it: Use for case MCQs and short written parts where you must decide quickly if Ind AS 113 applies and what price is relevant.

Q1: Does another Ind AS require or permit fair value for this item? If no, Ind AS 113 is not engaged.
Q2: Is it excluded (Ind AS 102, leasing transactions within Ind AS 116) or a measure similar to fair value but not fair value (NRV, value in use)? If yes, Ind AS 113 does not apply to that measure. Remember that a fair value needed for another purpose is not a leasing transaction, and that fair value less costs of disposal is not excluded.
Q3: Is the price an exit price from an orderly transaction between market participants at the measurement date? Reject entry, forced-sale and entity-specific prices.

Common mistakes in Ind AS 113 Scope, Objective and Definition of Fair Value

Saying Ind AS 113 requires assets to be carried at fair value.
The title suggests it decides measurement basis.
Fix: State that Ind AS 113 only gives the method. Other Ind AS decide when fair value is used.
Treating NRV under Ind AS 2 or value in use under Ind AS 36 as fair value.
They look like market-based values.
Fix: Remember they are measures similar to, but not, fair value. They are excluded from Ind AS 113.
Using the price the entity paid as fair value in every case.
Entry price and exit price are often close at purchase.
Fix: Fair value is an exit price. Test whether the transaction price represents it, and do not assume equality.
Using a distress or forced-sale price.
It is the only price observed in the case.
Fix: The definition needs an orderly transaction. A forced sale price is not fair value unless the market is shown to be orderly.
Applying the entity's own intention or plans to measure fair value.
Students link value to how the entity will use the asset.
Fix: Fair value is market-participant based. Entity-specific intent does not change it.
Thinking disclosure-exempt items are also exempt from measurement rules.
The exemption wording is read loosely.
Fix: For plan assets and similar items, only the Ind AS 113 disclosures are exempt. Measurement guidance still applies. Fair value less costs of disposal under Ind AS 36 is measured using Ind AS 113 and only its disclosures are exempt. Value in use is the measure that is excluded.

Worked examples

Example 1

Alpha Ltd holds inventory. Its cost is ₹80,00,000. Its estimated selling price in the ordinary course is ₹95,00,000 and the costs to complete and sell are ₹10,00,000. The finance head says Ind AS 113 must be used to value this inventory at year end. Evaluate.

Show the solution

Provision: Ind AS 2 measures inventory at the lower of cost and net realisable value. NRV is a measure similar to but not fair value, so it is outside Ind AS 113.
Facts: NRV = ₹95,00,000 − ₹10,00,000 = ₹85,00,000. Cost is ₹80,00,000.
Compare: cost ₹80,00,000 is lower than NRV ₹85,00,000.
Conclusion: inventory is carried at ₹80,00,000 and no write-down arises. Ind AS 113 is not used to measure it.

Answer: The finance head is wrong. Inventory is measured under Ind AS 2 at the lower of cost and NRV. NRV is not fair value and Ind AS 113 does not apply. Carrying amount is ₹80,00,000.

Example 2

Beta Ltd holds a listed equity investment. Beta Ltd bought the shares last year at ₹500 each. On the reporting date, a distressed seller offers shares at ₹520, while the quoted price in the active market on that date is ₹560. Under another Ind AS the investment is measured at fair value. What per-share figure should Beta Ltd use?

Show the solution

Provision: another Ind AS (Ind AS 109) requires fair value, so Ind AS 113 supplies the method.
Definition: fair value is the exit price in an orderly transaction between market participants at the measurement date.
Facts: the distressed offer of ₹520 is not from an orderly transaction. The quoted price in the active market on the reporting date is ₹560.
The earlier purchase price of ₹500 is an entry price at a past date and is not relevant to the measurement date.
Conclusion: use the quoted price in the active market.

Answer: Beta Ltd should use ₹560 per share. The distressed ₹520 offer is not an orderly transaction, and the ₹500 cost is a past entry price.

Exam tips

In theory answers, quote the definition fully: exit price, orderly transaction, market participants, measurement date.
For exclusion questions, list Ind AS 102, Ind AS 116 and the NRV and value in use examples. Add the disclosure exemptions separately.
In case MCQs, look for words like forced, distressed, urgent or entity-specific. They signal a price that is not fair value.
Always state that Ind AS 113 gives the method and other standards decide when to use fair value. This sentence earns marks.

Practice questions from Ind AS 113 Fair Value Measurement

Ind AS 113 Scope, Objective and Definition of Fair Value 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 Scope, Objective and Definition of Fair Value: frequently asked questions

What is the exit price in Ind AS 113?

It is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It looks at the market's view of the item, not at what the entity paid.

What is the difference between fair value and entry price under Ind AS 113?

Entry price is the price paid to acquire an asset or received to assume a liability. Fair value is the exit price on selling the asset or transferring the liability. They may be equal at initial recognition, but the standard does not assume so.

Which items are outside the scope of Ind AS 113?

Share-based payment transactions under Ind AS 102 and leasing transactions within Ind AS 116 are outside it, for both measurement and disclosure. Measurements similar to fair value but not fair value, such as NRV in Ind AS 2 and value in use in Ind AS 36, are also outside it. Ind AS 113 still applies to fair value measurements required for other purposes, for example the fair value of plan assets or of an underlying asset when another standard needs it. Separately, some disclosures are exempt, such as for plan assets under Ind AS 19 and for assets whose recoverable amount is fair value less costs of disposal under Ind AS 36. That fair value less costs of disposal is still measured using Ind AS 113.

Does Ind AS 113 say when to use fair value?

No. Other Ind AS require or permit fair value. Ind AS 113 only defines it, sets the measurement framework and requires disclosures.