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

Narmada Steel Ltd is preparing to measure the fair value of a land parcel. An analyst proposes using the price Narmada paid last year, ignoring the current market. Considering the definition of fair value in Ind AS 113, which element of the definition does this approach disregard?

The approach ignores that fair value is a price at the measurement date between market participants. Last year's purchase price reflects past conditions, so it does not represent the price that would be received to sell the land in an orderly transaction at the reporting date.

  1. AThat the price relates to the measurement date, so it must reflect conditions at that dateCorrect
  2. BThat the transaction must be a related party transaction to be reliable
  3. CThat fair value must always be lower than the carrying amount
  4. DThat the price is determined only by the seller's cost of acquisition

Explanation

The definition ties fair value to the measurement date, so the price must reflect market conditions then, not a historical transaction price from last year. Using last year's price ignores changes in the market. The other options state ideas that are not part of the definition.

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