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

Under Ind AS 113, fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Kaveri Pharma Ltd holds an investment in unquoted shares. At the measurement date, a recent orderly transaction between market participants in identical shares occurred at ₹120 per share. A forced liquidation sale by a distressed holder the same day was at ₹85 per share. The company holds 50,000 shares and its cost was ₹100 per share. What is the total fair value of the holding?

The total fair value is ₹60 lakh. Fair value is the price in an orderly transaction between market participants, so the ₹120 per share price applies to 50,000 shares. The distressed forced-sale price of ₹85 is not an orderly transaction and cost is irrelevant.

  1. A₹42.5 lakh
  2. B₹50.0 lakh
  3. C₹60.0 lakhCorrect
  4. D₹52.5 lakh

Explanation

Fair value uses the price in an orderly transaction between market participants: ₹120 × 50,000 = ₹60,00,000 (₹60 lakh). The ₹85 forced sale is not an orderly transaction, giving ₹42.5 lakh, which is wrong. Cost of ₹100 gives ₹50 lakh, which is not a fair value. The ₹52.5 lakh is an average of ₹120 and ₹85 (₹102.5), which is also wrong.

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