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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 or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Narmada Realty Ltd owns land bought for ₹2.5 crore. At the measurement date, market participants in an orderly transaction would pay ₹3.6 crore for it. The company's management has a buyer privately offering ₹4.1 crore because of a special synergy with that buyer, and a valuer's depreciated replacement estimate is ₹3.0 crore. What fair value applies?

The fair value is ₹3.6 crore. Ind AS 113 defines fair value as the price market participants would pay in an orderly transaction at the measurement date. A single buyer's synergy offer, historical cost and a replacement-based estimate are not such a price.

  1. A₹2.5 crore
  2. B₹3.0 crore
  3. C₹3.6 croreCorrect
  4. D₹4.1 crore

Explanation

Fair value is the price market participants would pay in an orderly transaction at the measurement date: ₹3.6 crore. The ₹4.1 crore reflects a buyer-specific synergy and not a market-participant price. Cost of ₹2.5 crore is historical and ₹3.0 crore is a replacement-based estimate, neither an exit price.

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