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CMA Final · Corporate Financial Reporting · Fair Value Measurement (Ind AS 113)

Sunrise Industries Ltd. holds a machine and must measure its fair value under Ind AS 113. Which of the following best describes the measure required by 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 in a market, not cost or entity-specific value.

  1. AThe price that would be received to sell the asset in an orderly transaction between market participants at the measurement dateCorrect
  2. BThe price the entity originally paid to acquire the machine, adjusted for depreciation to the measurement date
  3. CThe price the entity would obtain only if it were forced to sell the machine immediately to a single known buyer
  4. DThe present value of the cash flows that the entity itself expects to earn from using the machine

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 sale is not an orderly transaction. Entity-specific value in use is not a market participant price.

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