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Rs
Price receivable 75

Less: Transportation cost (6)
Fair value of the asset 69

Q6 (November 19 – 8 Marks)
An asset is sold in two different active markets at different prices. Manor Ltd. enters into transactions in

both markets and can access the price in those markets for the asset at the measurement date.
In the Mumbai market, the price that would be received is Rs 290, transaction costs in that market are Rs 40
and the costs to transport the asset to that market are Rs 30. Thus, the net amount that would be received
is Rs 220.
In the Kolkata market the price that would be received is Rs 280, transaction costs in that market are Rs 20
and the costs to transport the asset to that market are Rs 30. Thus, the net amount that would be received

in Kolkata market is Rs 230.
(i) What should be the fair value of the asset if Mumbai Market is the principal market? What should be
fair value if none of the markets is a principal market?
(ii) The net realization after expenses is more in the export market, say Rs 280, but the Government allows

only 15% of the production to be exported out of India. Discuss what would be fair value in such a case.
SOLUTION

i)
a) If Mumbai Market is the principal market
If Mumbai Market 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 transportation costs.

Fair value will be
Rs
Price receivable 290
Less: Transportation cost (30)

Fair value of the asset 260
(b) 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 transportation costs (i.e., the net amount that would be received in the respective markets).
Rs Rs

Mumbai Kolkata
Market Market
Fair value of the asset as per the question 220 230

Since the entity would maximise the net amount that would be received for the asset in Kolkata Market
i.e., Rs 230, the fair value of the asset would be measured using the price in Kolkata Market.
Fair value in such a case would be
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