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

Sundaram Textiles Ltd holds a machine and must measure its fair value at 31 March. The finance head says fair value should be the price Sundaram originally paid for the machine, since that was a genuine arm's length transaction. Which statement is consistent with the definition of fair value in Ind AS 113?

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 a current exit price, not the original cost, an inflation-adjusted cost, or a forced-sale value.

  1. AFair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement dateCorrect
  2. BFair value is the original purchase price adjusted for inflation up to the measurement date
  3. CFair value is the price Sundaram expects to obtain by using the machine over its remaining life
  4. DFair value is the price that would be received in a forced sale to settle Sundaram's urgent liabilities

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 an exit price at the measurement date, not the historical cost. A forced sale is not an orderly transaction, so the last option is wrong.

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