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CMA Final · Corporate Financial Reporting · Fair Value Measurement (Ind AS 113)

Meru Industries Ltd must measure a liability at fair value on 31 March. Its own creditworthiness is poor, and it could settle the liability by paying its creditor ₹9 lakh. A market participant would take over the liability in an orderly transaction for ₹10 lakh, and the liability's carrying amount is ₹11 lakh. Which amount reflects the Ind AS 113 definition of fair value?

Fair value is ₹10 lakh, the price a market participant would be paid or would require to take over the liability in an orderly transaction at the measurement date. Settlement amount and carrying amount are not the transfer price.

  1. A₹9 lakh, because it is the settlement amount
  2. B₹11 lakh, because it is the carrying amount
  3. C₹10 lakh, because it is the price paid to transfer the liability in an orderly transaction between market participantsCorrect
  4. D₹20 lakh, being the sum of settlement and transfer prices

Explanation

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, which is ₹10 lakh. The ₹9 lakh settlement with the creditor is not a transfer price. Carrying amount ₹11 lakh is an accounting balance, not an exit price.

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