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

Narmada Steels Ltd values an investment at the reporting date, 31 March. On 31 March, an orderly transaction between market participants for a similar asset occurred at Rs 40 lakh. Later, on 15 April, a distressed seller disposed of a similar asset at Rs 32 lakh. Applying the Ind AS 113 definition of fair value, what is the relevant price for the 31 March measurement?

The relevant price is Rs 40 lakh. Fair value is the price in an orderly transaction between market participants at the measurement date. The 31 March transaction qualifies, while the later April sale was a distressed disposal after the measurement date and does not reflect an orderly transaction.

  1. ARs 36 lakh, being the average of the two transactions
  2. BRs 32 lakh, since it is the most recent price
  3. CRs 40 lakh, as it is the price in an orderly transaction at the measurement dateCorrect
  4. DRs 8 lakh, being the difference between the two prices

Explanation

Fair value is a price in an orderly transaction between market participants at the measurement date. The 31 March transaction at Rs 40 lakh meets this. The 15 April price is after the measurement date and was a distressed sale, so it is not orderly; averaging it in (Rs 36 lakh) is wrong.

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