FAQs – Fair Value

Objective of the fair value as per Ind AS 113 What is the objective of the fair value as per Ind AS 113? Ind AS 113 sets out a framework for measuring fair value including the definition of the fair value and the necessary disclosures about fair value measurements. Fair value is the market-based measurement and not an entity specific measurement. The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current conditions.…

Objective behind the valuation techniques Ind AS 113 What is the objective behind the valuation techniques as per Ind AS 113? The objective is to maximise the use of relevant observable inputs and minimise the use of unobservable inputs. Exchange markets, dealer markets, brokered markets and member-to-member markets are some of the examples of markets where the inputs might be observable for certain assets and liabilities. The inputs in this case refer to the characteristics of an asset or a liability that market participants normally take into account for determining the transaction. The fair value hierarchy gives highest priority to…

Fair value and how it is defined What is the fair value and how it is defined? 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. A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date, including the condition and location…

Relevance of fair value for non-financial assets How is fair value concept relevant for non-financial assets? A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. Highest and best use is determined from the perspective of market participants, even if the entity intends a different use. However, an entity’s current use of a non-financial asset is presumed to be its highest and…

Fair value hierarchy mentioned as per Ind AS 113 What is the fair value hierarchy mentioned in Ind AS 113? Ind AS 113 establishes a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). Level 1 inputs Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at…