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

Veda Textiles Ltd holds an equity investment and must measure its fair value at the reporting date. The finance manager says fair value is the price Veda originally paid to acquire the investment. Which statement reflects the definition of fair value in Ind AS 113?

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 a current exit price, not the original purchase price.

  1. AThe 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 dateCorrect
  2. BThe original transaction price paid to acquire the asset, adjusted for inflation up to the reporting date
  3. CThe price the entity expects to receive if it holds the asset until the end of its useful life
  4. DThe amount at which the asset could be sold in a forced liquidation at the measurement date

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. It is an exit price at the measurement date, not the historical acquisition price. The manager's view is therefore wrong.

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