Corporate Financial Reporting · Fair Value Measurement (Ind AS 113)

Fair Value Measurement Approach under Ind AS 113

Updated 11 October 2026 · Fact-checked

Fair value is 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 measure it, identify the asset, its principal (or most advantageous) market, the market participants, then the price. Deduct transport costs if location matters; never deduct transaction costs.

Understand Fair Value Measurement Approach: Asset, Market, Participants

Ind AS 113 does not ask what you paid or what you want. It asks what the price would be if the asset were sold (or the liability transferred) in an orderly transaction between market participants at the measurement date. This is an exit price from a market view, not an entity-specific view.

Para B2 gives the order of work. You determine: (a) the particular asset or liability being measured, consistent with its unit of account; (b) for a non-financial asset, the valuation premise, consistent with highest and best use; (c) the principal (or most advantageous) market; and (d) the valuation technique(s) suited to the data available.

The transaction is assumed to take place in the principal market. Only if there is no principal market is the most advantageous market used (para 16). The most advantageous market is the one that maximises the amount received to sell an asset, or minimises the amount paid to transfer a liability, after taking into account transaction costs and transport costs.

Market participants are buyers and sellers in that market who are: (a) independent of each other, (b) knowledgeable, (c) able to enter into the transaction, and (d) willing, that is motivated but not forced. You need not name specific participants. You identify the characteristics that distinguish them, considering the asset, the market, and the participants you would deal with (para 23).

The price is taken from that market. It is not adjusted for transaction costs (para 25), because these belong to a transaction, not to the asset. Transaction costs are accounted for under other Ind ASs. Transport costs are different (para 26): if location is a characteristic of the asset, such as a commodity, you adjust the price for the cost of moving the asset to that market.

Key rules to remember

Definition of fair value (para 9): Fair value = price to sell an asset / transfer a liability in an orderly transaction between market participants at the measurement date; An exit price, from the viewpoint of market participants.
Market to use (para 16): Principal market; if none, most advantageous market; Most advantageous market is chosen after considering transaction and transport costs.
Fair value when location matters: Fair value = Price in the market − Transport costs; Applies if location is a characteristic of the asset. Transaction costs are not deducted.
Net proceeds to compare markets: Net amount = Price − Transport costs − Transaction costs; Used only to select the most advantageous market, not to state fair value.
Transaction cost test: Directly from and essential to the sale AND would not be incurred if the sale decision were not made; Both criteria must be met. Transaction costs exclude transport costs.

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

Follow the Ind AS 113 sequence every time. It keeps your working short and earns step marks.

1Identify the asset or liability and its unit of account. For a non-financial asset, note the valuation premise (highest and best use).
2List the markets given and decide whether a principal market exists (the one with the greatest volume and activity that the entity can access).
3If a principal market exists, use it even if another market gives a higher net amount. If not, pick the most advantageous market by comparing price less transport costs less transaction costs.
4Check market participants: independent, knowledgeable, able and willing. Reject prices from forced or related-party deals unless there is evidence of market terms.
5Take the price in the chosen market. Do not deduct transaction costs.
6Deduct transport costs only if location is a characteristic of the asset.
7State the fair value, mention that transaction costs go to other Ind ASs, and give a one-line reason.

Quickest way: Two-column market comparison

When to use it: Numerical questions giving prices, transport costs and transaction costs in two or more markets.

Check first whether a principal market is stated or implied. If yes, stop comparing and use it.
If not, draw two columns: price, then price less transport costs less transaction costs. Pick the market with the higher net figure for an asset.
Fair value = that market's price − transport costs. Do not subtract transaction costs.
Write one line: transaction costs are excluded under para 25.

Common mistakes in Fair Value Measurement Approach: Asset, Market, Participants

Deducting transaction costs from the price to report fair value.
Students think fair value should equal net proceeds.
Fix: Para 25 says the price is not adjusted for transaction costs. Use them only to choose the most advantageous market.
Ignoring transport costs for a commodity.
Transport costs are confused with transaction costs.
Fix: Transaction costs exclude transport costs. If location is a characteristic of the asset, adjust the price for transport to the market (para 26).
Choosing the market with the highest price instead of the principal market.
Students assume the best price is always used.
Fix: The principal market comes first. Use the most advantageous market only when there is no principal market.
Using entity-specific views, such as the entity's intention to hold the asset.
Habit from cost-based accounting.
Fix: Use the assumptions of market participants, defined by their characteristics, not the entity's own plans.
Accepting any transaction price as fair value.
Students assume a deal price always equals fair value.
Fix: Para B4 lists exceptions: related parties, duress, a different unit of account, or a different market. Check these.

Worked examples

Example 1

Aarav Metals Ltd holds 10,000 units of a commodity at its Pune warehouse. Principal market (Mumbai exchange): price ₹500 per unit, transport ₹20 per unit, transaction cost ₹8 per unit. Location is a characteristic of the commodity. Determine fair value per unit and in total.

Show the solution

A principal market exists, so use the Mumbai exchange. No market comparison is needed.
Price in the principal market = ₹500 per unit.
Location matters, so deduct transport: ₹500 − ₹20 = ₹480 per unit.
Transaction cost of ₹8 is not deducted (para 25). It is accounted for under other Ind ASs.
Total = 10,000 × ₹480 = ₹48,00,000.

Answer: Fair value is ₹480 per unit, total ₹48,00,000.

Example 2

Kaveri Ltd holds an asset with no principal market. Market X: price ₹1,000, transport ₹60, transaction costs ₹30. Market Y: price ₹1,020, transport ₹90, transaction costs ₹40. Location is a characteristic of the asset. Find the most advantageous market and fair value.

Show the solution

No principal market, so use the most advantageous market (para 16(b)).
Net in X = 1,000 − 60 − 30 = ₹910.
Net in Y = 1,020 − 90 − 40 = ₹890.
X gives the higher net amount, so X is the most advantageous market.
Fair value = price in X less transport only = 1,000 − 60 = ₹940.
Transaction costs of ₹30 are excluded from fair value.

Answer: Market X is the most advantageous market; fair value is ₹940.

Exam tips

Write the sequence: asset, market, participants, price. Examiners award marks for each step.
In numerical questions, state clearly that transaction costs are used for choosing the market but not deducted from fair value.
Always check for a principal market before comparing prices.
For MCQs, watch the words 'transport' versus 'transaction'. They are treated differently.
In case scenarios, test whether the stated deal price is from a related party or a forced seller before using it.

Practice questions from Fair Value Measurement (Ind AS 113)

Fair Value Measurement Approach: Asset, Market, Participants in other exams

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

Fair Value Measurement Approach: Asset, Market, Participants: frequently asked questions

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

The principal market is the one assumed for the transaction. Only in its absence do you use the most advantageous market, which maximises the net amount received after transaction and transport costs.

Are transaction costs part of fair value?

No. Para 25 says the price is not adjusted for transaction costs because they are specific to a transaction, not to the asset. They are accounted for under other Ind ASs.

Are transport costs deducted in fair value?

Yes, if location is a characteristic of the asset, such as a commodity. The price in the market is adjusted for the cost of transporting the asset to that market.

Who are market participants under Ind AS 113?

They are independent, knowledgeable buyers and sellers in the principal or most advantageous market who are able and willing, but not forced, to transact. You identify their characteristics rather than specific names.