FAIR VALUE MEASUREEMNT

BENEFITS OF USING FV
1 More relevant - up-to-date valuation
2 Reflect economic realities
3 Provides insights into risks undertaken by management
4 More acceptable basis in Financial Reporting

CHALLENGES IN FV
1 Earnings volatility
2 Unrealized loss has negative effect to users

YEAR UNREALIZED LOSS

1 100,000
Would you sell or hold on to your investment?

3 May provide unreliable/ inaccurate results in unusual market conditions

4 involves complexity & judgment
5 COST

IF THERE IS NO PRINCIPAL MARKET, CONSIDER THE FOLLOWING (MOST ADVANTAGEOUS

MARKET)
Transaction cost? Transport Cost?
Most Advantageous Market Include Include
To Set FV Exclude Exclude*

*Include only if location is a characteristic of the asset. In Measuring Fair Value, one of its
consideration is to determine the asset and/ or libaility to be measured. Therefore, an
entity should consider the characteristic of an asset / libaility - condition & location and
restriction to sell/ to transfer

ILLUSTRATION
*Sawi Company has an asset that is sold in two different markets, Market A and Market B,
with similar volumes of activities, but with different prices. Sawi Company enters into
transactions in both markets and can access the price in those markets for the asset at the
measurement date. There is no principal market for the asset. Information from both
markets is presented as follows.

Amount A B
How should sawi measure the asset? Price 27 25
P22 Transport costs -3 -2
Market B - most advantageous Transaction costs -3 -1
Net amount 21 22
*Assuming your product is (are) Soy Beans / Banana / Mango / Seafood and able to
produce 100,000 kilos per month

MARKET PRICE
EXPORT P2,500/ kilo
DOMESTIC P1,000/ Kilo

Which is the Principal and Most Advantageous Market?

*Considering the price, the most advantageous market is export while principal market
is domestic. Identification of markets would vary depending on capability to sell
a certain percentage of your output. Had there been no restrictions in export sales
export market shall be considered as principal and/ or most advantageous