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

Kaveri Pharma Ltd must measure a liability at fair value under Ind AS 113. Its finance manager says the value should be what Kaveri itself would pay to settle the obligation with the creditor today. Which statement correctly reflects the fair value definition?

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 a transfer price, not the amount settled with the creditor, the book carrying amount or the original proceeds.

  1. AFair value is the price paid to transfer the liability in an orderly transaction between market participants at the measurement dateCorrect
  2. BFair value is the amount Kaveri pays to settle the creditor, whatever the creditor demands at the date
  3. CFair value is the carrying amount of the liability in the books, since a liability has no market price
  4. DFair value is the price Kaveri originally received when the liability was first incurred

Explanation

Ind AS 113 states that for a liability fair value is the price paid to transfer it in an orderly transaction between market participants at the measurement date. It is a transfer price, not a settlement amount negotiated with the creditor. The carrying amount and the original issue price are historical or book figures and do not define fair value.

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