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

Under Ind AS 113, fair value is defined 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. Sunrise Textiles Ltd holds machinery it bought for ₹50 lakh a year ago. A dealer quotes ₹38 lakh as the price at which other market participants would currently buy a similar machine in an orderly transaction. The company's own planned scrap-sale value is ₹30 lakh, and replacement cost new is ₹55 lakh. What is the fair value of the machinery?

The fair value is ₹38 lakh. Ind AS 113 defines fair value as the price received to sell an asset in an orderly transaction between market participants at the measurement date. Historical cost, the company's own scrap plan and replacement cost are not market-participant exit prices.

  1. A₹50 lakh
  2. B₹38 lakhCorrect
  3. C₹30 lakh
  4. D₹55 lakh

Explanation

Fair value is an exit price: the price received to sell an asset in an orderly transaction between market participants at the measurement date. The dealer's ₹38 lakh reflects what market participants would pay. The historical cost of ₹50 lakh, the entity-specific scrap plan of ₹30 lakh and the replacement cost of ₹55 lakh are not exit prices between market participants.

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