- This topic has 1 reply, 2 voices, and was last updated 8 years ago by
.
- Posts
An asset is sold in two 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 as follows:
Market 1 Market 2
Price 26 25
Transaction costs (3) (1)
Transport costs (2) (2)
Net price received 21 22
What is the fair value of the asset if:
(a) market 1 is the principal market for the asset?
(b) no principal market can be determined?Hi,
The principal market is the most liquid market, so in (a) we would use market 1 and 24 (=26 – 2, as we ignore transaction costs). If there is no principal market then we would use the most advantageous market, which is done by taking into account the transaction costs. In this instance we would use Market 2 as it is most advantageous to sell the asset in this market but the fair value used is 23 (=25 – 2, as again we ignore the transaction costs in th fair value calculation itself.)
There is a very similar example in the BPP study text that you can look at too.
Thanks
- You must be logged in to reply to this topic.