Page 7 - 26. COMPILER QB - IND AS 113

QUESTIONS FROM PAST EXAM PAPERS

Q5 (November 18 – 5 Marks)

An asset is sold in 2 different active markets at different prices. An entity enters into transactions in both
markets and can access the price in those markets for the asset at the measurement date.
In Market A:
The price that would be received is Rs. 78, transaction costs in that market are Rs. 9 and the costs to

transport the asset to that market are Rs. 6.
In Market B:
The price that would be received is Rs. 75, transaction costs in that market are Rs. 3 and the costs to
transport the asset to that market are Rs. 6.
You are required to calculate:
i) The fair value of the asset, if market A is the principal market, and

ii) The fair value of the asset, if none of the markets is principal.
SOLUTION

(I) If Market A is the principal market
If Market A is the principal market for the asset (i.e., the market with the greatest volume and level of

activity for the asset), the fair value of the asset would be measured using the price that would be received
in that market, after taking into account transport costs.
Fair Value of the asset will be
Rs

Price receivable 78
Less: Transportation cost (6)
Fair value of the asset 72

(ii) If neither of the market is the principal market

If neither of the markets is the principal market for the asset, the fair value of the asset would be measured
using the price in the most advantageous market. The most advantageous market is the market that
maximises the amount that would be received to sell the asset, after taking into account transaction costs
and transport costs (i.e., the net amount that would be received in the respective markets).
Determination of most advantageous market:

Rs Rs
Market A Market B
Price receivable 78 75

Less: Transaction cost (9) (3)
Less: Transportation cost (6) (6)
Fair value of the asset 63 66

Since the entity would maximise the net amount that would be received for the asset in Market B i.e. Rs66,
the fair value of the asset would be measured using the price in Market B.
Fair value of the asset will be

26. 6