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

Sagar Textiles Ltd holds a machine that it plans to sell. A reporting-date valuation is being prepared under Ind AS 113. Which of the following best reflects the definition of fair value as given in the standard?

Fair value under Ind AS 113 is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is an exit price, not historical cost, forced-sale value or entity-specific value in use.

  1. AThe price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement dateCorrect
  2. BThe price the entity originally paid to acquire the asset, adjusted for depreciation up to the measurement date
  3. CThe price the entity would receive from a forced sale of the asset to a single known buyer within a short period
  4. DThe amount an entity expects to recover from continued use of the asset in its own operations over its life

Explanation

Ind AS 113 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Option 2 describes depreciated historical cost, and option 4 describes a forced sale, which is not an orderly transaction. Option 3 describes value in use, which is entity-specific and not fair value.

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