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

Sahyadri Textiles Ltd holds a machine and is valuing it at the reporting date. A fair value measurement under Ind AS 113 is described 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. Sahyadri's finance head proposes using the price the company itself paid for the machine two years ago. Which statement best reflects the definition?

Fair value 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 the historical cost the entity paid earlier, nor a forced-sale or value-in-use figure.

  1. AFair value is the price paid to acquire the asset, adjusted for depreciation, as at the measurement date
  2. BFair value is an exit price that would be received on sale in an orderly transaction between market participants at the measurement dateCorrect
  3. CFair value is the price the entity expects to receive from continued use of the asset in its own business
  4. DFair value is the price received in a forced sale to settle the entity's urgent obligations at the measurement date

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. It is therefore an exit price at the measurement date, not the historical entry price. The depreciated cost option is wrong because it is based on the past purchase price and not on a current exit price.

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