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

Sundaram Textiles Ltd holds a machine that it plans to sell. The company has received a firm offer of Rs 48 lakh from a related party, which is well above the price at which similar machines are currently trading in an orderly market among unrelated parties (about Rs 40 lakh). Which statement best reflects the definition of fair value in Ind AS 113 for measuring this machine?

Fair value under Ind AS 113 is the price received to sell an asset in an orderly transaction between market participants at the measurement date. The related-party offer is not a market participant price, so the Rs 40 lakh orderly market price is the better indicator of the machine's fair value.

  1. AFair value is the price that would be received to sell the asset in an orderly transaction between market participants at the measurement date, so Rs 40 lakh is the better indicatorCorrect
  2. BFair value is the highest price any single buyer is willing to pay, so Rs 48 lakh applies
  3. CFair value is the entity's own cost of replacing the machine, regardless of market prices
  4. DFair value is the amount the entity expects to realise through continued use, so the offer is irrelevant

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. A related-party offer above the orderly market price is not evidence of a market participant price, so Rs 40 lakh is the better indicator. The Rs 48 lakh option confuses a single buyer's price with a market participant price.

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