Which of the following best describes the definition of fair value?
a. Initial purchase price.
b. Current fair value adjusted for managements intentions.
c. Exit price.
d. The amount a willing buyer and seller agree to as a price given a reasonable period of time.
Definition of Fair Value In accordance with IFRS 13, 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" (IFRS 13.9). Therefore, fair value has the following characteristics: It is a current exit price; it is not a current entiy price It is the price obtained in a hypothetical and orderly transaction, i.e., it . is not a forced transaction, such as a forced liquidation or distress sale .It is a market-based measurement between market participants, and not an entity-specific measurement that is based on the entity's specific use or plans; and It reflects current market conditions, at the measurement date, from the perspective of a market participant, and not the entity's current expectations about future market conditions. Fair value is an exit price that is conceptually different from its entry price An entry price is the price that would be paid to purchase an asset or received to assume a liability in an exchange transaction. An exit price is the price that would be received to sell an asset or paid to transfer a liability (IFRS 13 Appendix A). In many cases, the fair value (the exit price) will equal the transaction price (the enty price) at initial recognition, but not presumptively (see Fair Value vs. Transaction Price in this chapter). Example 3.1 Exit Price vs. Entry Price Halifax Entity (HE) acquired a piece of equipment on July 1, 20X1 for a transaction price of $150,000 (the enty price). HE paid $100,000 in cash and assumed a debt S50,000 from a local bank. On December 20, 20X1, HE sold this equipment for $145,000 and repaid $50,000 (i.e., a settlement value) owed to a bank. The exit price for the equipment is $145,000. The S145,000 is also the entry price for the unrelated buyer of this equipment. The exit price for the $50,000 liability is the amount at which this liability currently could be transferred to another market participant (which may be different than $50,000)
