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

Godavari Realty Ltd measures an investment at fair value at 31 March. On that date the market for similar assets was functioning normally, and the company's CFO suggests using the price at which the company originally bought the asset a year ago. Under the Ind AS 113 definition, what should fair value represent?

Fair value is the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date, 31 March here. The historical purchase price from a year ago does not reflect conditions at that date, so it does not represent fair value.

  1. AThe price that would be received to sell the asset in an orderly transaction between market participants at 31 MarchCorrect
  2. BThe price originally paid for the asset one year ago
  3. CThe price the company would like to receive to achieve a profit
  4. DThe average of the purchase price and the expected price at the next reporting date

Explanation

Fair value is measured at the measurement date, here 31 March, as the price received to sell the asset in an orderly transaction between market participants. The original purchase price is a historical cost, not a measurement date price. The other options are not part of the definition.

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