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

Kaveri Pharma Ltd has to determine the fair value of a liability it owes. The accountant proposes using the amount Kaveri would pay to settle the liability with the creditor on the due date, in the way Kaveri itself prefers. Under the Ind AS 113 definition of fair value, which approach reflects the required measurement objective?

For a liability, fair value is the price that would be paid to transfer it in an orderly transaction between market participants at the measurement date. It is not the entity's own preferred settlement amount or the original recorded amount, because the definition looks to market participants and the measurement date.

  1. AThe price that would be paid to transfer the liability in an orderly transaction between market participants at the measurement dateCorrect
  2. BThe amount Kaveri expects to pay at its own chosen settlement date, ignoring market participants
  3. CThe original amount recorded when the liability was first incurred
  4. DThe price that would be received to sell a similar asset in a forced liquidation

Explanation

For a liability, Ind AS 113 defines fair value as the price paid to transfer it in an orderly transaction between market participants at the measurement date. The proposal based on Kaveri's own preferred settlement ignores the market participant perspective, so it is wrong. Original recorded amount is historical, not current.

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