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

Under Ind AS 113, Meera Steels Ltd is valuing an investment property. Its valuer proposes using the price Meera would get if it had to sell within two days to meet a lender's demand. Which view is consistent with the fair value definition?

The distressed two-day sale price is not fair value. Ind AS 113 defines fair value as the price in an orderly transaction between market participants at the measurement date, and a forced sale driven by the lender's demand is not orderly. Fair value is also not historical cost.

  1. ASuch a distressed price is inappropriate because fair value assumes an orderly transaction between market participants at the measurement dateCorrect
  2. BThe price is appropriate because fair value is always the quickest achievable sale price
  3. CThe price is appropriate because fair value reflects Meera's own circumstances and financing needs
  4. DThe price is inappropriate because fair value must equal the original purchase price

Explanation

Fair value is the price received to sell an asset in an orderly transaction between market participants at the measurement date. A sale forced by a lender's demand is not orderly, so the distressed price does not represent fair value. Fair value is also not the original cost, which rules out the last option, and it is not based on the entity's own circumstances.

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