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CA Final · Financial Reporting · Ind AS 113 Fair Value Measurement

Ganga Steels Ltd has a quoted equity investment. On 31 March, the reporting date, the market closed at a price lower than the price at which Ganga bought it in February. The accountant argues the fair value should remain at the February price because 'the transaction price is the real value'. Which statement aligns with the Ind AS 113 definition?

Fair value is measured at the measurement date as the price that would be received to sell the asset in an orderly transaction between market participants. So the 31 March market-based exit price applies, not the earlier February purchase price.

  1. AFair value is determined at the measurement date, so the 31 March exit price in an orderly transaction between market participants is relevant, not the February priceCorrect
  2. BFair value stays at the February price until the investment is sold
  3. CFair value is the average of the purchase price and the closing price
  4. DFair value is the price the entity hopes to receive in future from the investment

Explanation

The definition ties fair value to the measurement date and to what would be received to sell the asset in an orderly transaction between market participants. The reporting-date market conditions therefore govern, not the earlier purchase price. Averaging or hoped-for prices are not part of the definition.

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