Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IFRS 13 - Fair Value Measurement

Indian equivalent: Ind AS 113 - Fair Value Measurement

Objective and scope

IFRS 13 is the single dictionary for the phrase 'fair value' used across all the other standards - it defines fair value and sets out how to measure it consistently, but it does not decide when fair value must be used (that's each other standard's job).

Core principle

Many standards say 'measure this at fair value' - but what is fair value? IFRS 13 gives one answer: the price to sell an asset (or transfer a liability) in an orderly transaction between market participants today - an exit price - ranked by a three-level reliability hierarchy.

Defined terms and technical terminology

Term	Technical meaning
Fair value	The price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).
Orderly transaction	A normal, unforced transaction - not a fire-sale or distress deal.
Market participants	Independent, knowledgeable, willing and able buyers and sellers in the principal market.
Principal market	The market with the greatest volume and activity for the asset/liability.
Fair value hierarchy	A three-level ranking of the inputs used, by how observable and reliable they are.
Highest and best use	For non-financial assets, fair value assumes the use that maximises value to market participants.

Application and worked illustrations

The exit-price concept

Fair value is what you'd receive on selling (an exit price), not what you paid to buy (an entry price). It's measured in the principal market (or, absent one, the most advantageous market), assuming an orderly transaction between willing market participants - never a panic sale. This makes fair value an objective, market-based measure rather than a company's private opinion. For a non-financial asset, it reflects the asset's highest and best use.

The three-level hierarchy with examples

Level 1 - quoted prices in active markets for identical items (most reliable): a share listed on a stock exchange is valued at today's quoted price, full stop. Level 2 - observable inputs other than quoted prices: a building valued using recent sale prices of similar nearby properties, or a bond valued using observable yield curves. Level 3 - unobservable inputs (least reliable, most judgement): an unlisted start-up investment valued using the company's own cash-flow forecasts and assumptions.

Worked example

A fund holds three assets. (1) 1,000 listed shares quoted at ₹500 → fair value ₹5,00,000, Level 1. (2) A commercial property valued at ₹2 crore using recent comparable sales adjusted for location → Level 2. (3) A stake in a private tech startup valued at ₹80 lakh using a discounted-cash-flow model with management's growth assumptions → Level 3. IFRS 13 requires the fund to disclose which level each fair value falls into, so readers know how much judgement - and therefore how much uncertainty - sits behind each number.

Common mistake: using an entry price (what was paid) as fair value. Fair value is an exit price in the principal market.

IND AS LINK

Ind AS 113 is fully converged with IFRS 13 - same exit-price definition, principal-market concept and three-level hierarchy.

Further worked illustrations

Extra numeric example - principal vs advantageous market

A dealer could sell an asset in Market A (price ₹1,000, transaction cost ₹50 → net ₹950) or Market B (price ₹1,020, cost ₹90 → net ₹930). If Market A is the principal market (most volume/activity), fair value = the gross price there = ₹1,000 (transaction costs are not deducted from fair value, though they're considered when identifying the most advantageous market). Fair value is a market price, not your net proceeds.

INDIAN REGULATORY CONTEXT

Indian AIFs, PE funds and companies holding stakes in unlisted startups must fair-value them under Ind AS 113 - usually Level 3 (unobservable inputs), using DCF or recent-transaction methods. Because these rely on management assumptions, Ind AS 113 demands extensive disclosure of the inputs and sensitivity, an area of intense auditor focus in India.

TECHNICAL EDGE CASE

A company owns land it currently uses as a car park, worth ₹2 crore in that use. But a developer would pay ₹5 crore to build flats, which is legally permissible, physically possible and financially feasible. IFRS 13 measures fair value at the highest and best use = ₹5 crore, even though the company has no intention of developing it. Fair value reflects what market participants would do, not the owner's current plans.