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Can you please tell me the difference between market value and fair value?
What i understand is that fair value is actually the market value but it could be different because it is price agreed between the seller and buyer and either the buyer negotiated the price which means it is going to be lower than the market value or seller has convinced the buyer to pay more for the asset than it actual market price?
For example the seller is ready to sell the asset for $100,000 but the buyer negotiated the price and seller agreed to accept $90,000 even though the marker price of the assets was $100,000?
Another scenario is that the seller has convinced the buyer for the potential benefits of the asset and buyer is willing to pay more for the asset to $120,000 even though the actual market price is $100,000?
Market value refers to the price at which an asset or liability can be bought or sold in the open market. It is determined by the forces of supply and demand and reflects the current market conditions. Market value is influenced by factors such as economic conditions, and market trends.
In the example you provided, if the market value of an asset is $100,000, it means that buyers are willing to pay that amount to acquire the asset.
Fair value is an estimate of the value of an asset or liability based on objective criteria.
It is typically determined using valuation techniques that take into account factors such as market prices, and assumptions about future cash flows.
Fair value is used in financial reporting to provide a more accurate representation of an entity’s financial position.
In your example, if the buyer negotiated the price down to $90,000, it could be considered the fair value if it reflects the estimated value of the asset based on objective criteria.It is important to note that fair value may not always be equal to market value.
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