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

Sundaram Textiles Ltd holds a machine and wants to measure its fair value at 31 March. Which of the following best reflects 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 an exit price from a market perspective, not historical cost, a forced sale price or entity-specific value in use.

  1. AThe price that would be received to sell an asset 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 expects to receive by selling the asset in a forced liquidation within the next year
  4. DThe present value of cash flows that the entity itself expects to earn from using the asset

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. Historical cost less depreciation is a carrying amount, not fair value. A forced liquidation is not an orderly transaction. Entity-specific value in use is not a market participant exit price.

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