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

Narmada Foods Ltd must measure the fair value of a machine it intends to sell. The sale would be a clearance sale after a fire in the warehouse, at a deeply reduced price accepted by the first bidder. A director suggests using this price as fair value. Which is the best response under the Ind AS 113 definition?

Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. A distressed clearance price after a fire is not an orderly transaction, so it does not by itself represent fair value.

  1. AThe price should be one that would be received in an orderly transaction between market participants at the measurement date, so a distressed clearance price does not by itself represent fair valueCorrect
  2. BFair value equals any price actually received, whether or not the transaction is orderly
  3. CFair value equals the original cost less depreciation in all cases
  4. DFair value is the price the director personally considers acceptable

Explanation

The definition requires an orderly transaction between market participants at the measurement date. A forced, fire-clearance sale to the first bidder is not orderly, so its price does not by itself reflect fair value. Cost less depreciation is a carrying amount concept, not the definition.

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