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

Scope and Objective of Ind AS 113 Fair Value Measurement

Updated 11 October 2026 · Fact-checked

Ind AS 113 defines fair value, sets a single framework for measuring it, and requires disclosures. 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. It applies when another Ind AS requires or permits fair value, with stated exceptions.

Understand Scope and Objective of Ind AS 113

Ind AS 113 does not tell you when to use fair value. Other standards do that, such as those on investment, financial instruments or business combinations. Ind AS 113 tells you what fair value means and how to measure it once another standard asks for it.

The standard has three aims. It defines fair value. It sets out, in one standard, a framework for measuring it. It requires disclosures about fair value measurements.

Fair value is a market-based measurement, not an entity-specific one. Sometimes market transactions or information can be observed. Sometimes they cannot. The objective is the same either way: estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date, under current market conditions.

This is an exit price. It is the price you would receive to sell an asset or pay to transfer a liability. It is seen from the view of a market participant that holds the asset or owes the liability. It is not what you paid, and not what the asset is worth to you in your business.

On scope, the standard applies when another Ind AS requires or permits fair value measurements or disclosures about them. This includes measures based on fair value, such as fair value less costs to sell. It also applies to an entity's own equity instruments measured at fair value. Three areas are excluded: share-based payments under Ind AS 102, leasing transactions under Ind AS 116, and measures that look like fair value but are not, such as net realisable value in Ind AS 2 and value in use in Ind AS 36.

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; Learn the key phrases: exit price, orderly transaction, market participants, measurement date.
Objective of the standard: Ind AS 113 (a) defines fair value; (b) sets a single framework for measuring it; (c) requires disclosures; Three limbs. Examiners often ask you to list them.
General scope rule: Applies when another Ind AS requires or permits fair value measurements or disclosures, including measures based on fair value such as fair value less costs to sell; Exceptions are only those in the scope paragraphs.
Scope exclusions: Not applied to: (a) share-based payments under Ind AS 102; (b) leasing under Ind AS 116; (c) measures similar to but not fair value, e.g. NRV (Ind AS 2), value in use (Ind AS 36); The exclusion covers both measurement and disclosure requirements.
Nature of fair value: Market-based, not entity-specific; Your own intentions or special benefits do not set fair value.

How to solve Scope and Objective of Ind AS 113 questions

Use this method for any question asking whether Ind AS 113 applies, or what fair value means in a given case.

1Identify the item and the standard that deals with it. Check whether that standard requires or permits fair value, or requires fair value disclosures.
2Check the three exclusions: share-based payment (Ind AS 102), leasing (Ind AS 116), and measures like NRV or value in use that only resemble fair value.
3If excluded, say so and name the standard that governs the measurement.
4If in scope, state the definition: exit price, orderly transaction, market participants, measurement date.
5Apply the market view. Ignore entity-specific factors such as the price you paid or your intended use.
6Conclude clearly: in scope or out, and what the measurement objective is.

Quickest way: Three-question scope check

When to use it: For MCQs and short scenario questions on whether Ind AS 113 applies.

Ask: does another Ind AS require or permit fair value here? If no, Ind AS 113 is not triggered.
Ask: is it share-based payment, a lease transaction, or NRV or value in use? If yes, it is excluded.
Otherwise, measure as an exit price from a market participant's view at the measurement date.

Common mistakes in Scope and Objective of Ind AS 113

Treating fair value as the price paid to buy the asset (an entry price).
Cost is the usual starting point in accounting, so entry price feels natural.
Fix: Fair value is an exit price: the price received to sell the asset or paid to transfer the liability.
Using net realisable value of inventory or value in use as fair value.
All three are called values and look alike.
Fix: The standard says these only resemble fair value. NRV (Ind AS 2) and value in use (Ind AS 36) are outside its scope.
Applying Ind AS 113 to share-based payment or lease measurement.
Ind AS 102 uses fair value of options, so students assume Ind AS 113 governs it.
Fix: Share-based payments under Ind AS 102 and leasing under Ind AS 116 are excluded. Follow those standards for their measurement.
Thinking fair value reflects the entity's own intentions or benefits.
Students value the asset by how they plan to use it.
Fix: Fair value is market-based, not entity-specific. Take the market participant's view.
Believing Ind AS 113 decides when fair value must be used.
The title suggests it is the master rule for fair value.
Fix: Other Ind ASs require or permit fair value. Ind AS 113 only defines it, gives the framework and sets disclosures.
Forgetting that scope covers only assets and liabilities.
Students overlook the own equity instruments rule.
Fix: The standard focuses on assets and liabilities and also applies to an entity's own equity instruments measured at fair value.

Worked examples

Example 1

Fortis Textiles Ltd has to measure (a) an equity investment that Ind AS requires at fair value, (b) stock options granted to employees under Ind AS 102, and (c) inventory at net realisable value under Ind AS 2. State whether Ind AS 113 applies to each.

Show the solution

(a) Another Ind AS requires fair value for the investment, so Ind AS 113 applies and gives the measurement framework and disclosures.
(b) Share-based payment transactions within Ind AS 102 are excluded from the measurement and disclosure requirements of Ind AS 113. Ind AS 102 governs.
(c) NRV in Ind AS 2 has some similarities to fair value but is not fair value. It is excluded.

Answer: Ind AS 113 applies only to (a). It does not apply to (b) or (c).

Example 2

Kaveri Ltd bought a machine for ₹40,00,000. At the reporting date, an orderly sale to market participants would fetch ₹32,00,000. Kaveri's management values it at ₹36,00,000 for its own use. Where fair value is required, what is the fair value, and why?

Show the solution

Fair value is the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date.
The purchase price of ₹40,00,000 is an entry price, so it is not the measure.
The ₹36,00,000 is an entity-specific view. Fair value is market-based, not entity-specific.
The exit price from the market participant's perspective is ₹32,00,000.

Answer: Fair value is ₹32,00,000, the exit price at the measurement date.

Exam tips

Memorise the definition word for word in substance: exit price, orderly transaction, market participants, measurement date. Marks often hinge on these terms.
For scope questions, list the three exclusions and name the governing standard for each: Ind AS 102, Ind AS 116, and Ind AS 2 or Ind AS 36.
In MCQs, watch options that call NRV or value in use fair value. Those are the usual traps.
In case answers, say that fair value is market-based, then apply it to the facts. Do not use the entity's own intentions.
Write the three objectives of the standard as a short list if asked for its purpose.

Practice questions from Fair Value Measurement (Ind AS 113)

Scope and Objective of Ind AS 113: frequently asked questions

What is fair value as per 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 is an exit price, seen from a market participant's view.

Which items are outside the scope of Ind AS 113?

Share-based payment transactions within Ind AS 102, leasing transactions accounted for under Ind AS 116, and measures similar to but not fair value, such as NRV in Ind AS 2 and value in use in Ind AS 36.

Does Ind AS 113 say when fair value must be used?

No. It applies when another Ind AS requires or permits fair value measurements or disclosures. Ind AS 113 then supplies the definition, measurement framework and disclosure requirements.

Is fair value entity-specific?

No. It is a market-based measurement. The objective is the same whether or not market transactions can be observed: estimate the exit price for an orderly transaction between market participants under current market conditions.