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

Kaveri Pharma Ltd must measure the fair value of a liability it owes. Its finance manager proposes to use the amount Kaveri would pay to settle the liability with the creditor only if the creditor agreed, ignoring what a market participant would require. Which description best matches the definition of fair value in Ind AS 113 for a liability?

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 from a market perspective, not the undiscounted settlement amount or the earlier carrying amount.

  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 the entity expects to pay to the creditor on the final due date, undiscounted
  3. CThe carrying amount in the entity's books at the previous reporting date
  4. DThe price that would be received to sell the liability in a forced transaction at the measurement date

Explanation

Under the Ind AS 113 definition, fair value of a liability is the price that would be paid to transfer it in an orderly transaction between market participants at the measurement date. The manager's approach is entity-specific, which does not fit. Undiscounted settlement amounts and old carrying amounts are not the defined measure.

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