Fair value
Fair value is what an asset would sell for, or a liability cost to settle, in a normal unforced deal between willing, informed parties at the measurement date — a market exit price, not the holder's own estimate.
What it is
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Fair value measurement follows a hierarchy of evidence. Where a quoted price exists in an active market, that price is used directly. Where none exists, observable market inputs for comparable assets are used instead. Only when neither is available does a business fall back on its own assumptions and valuation models, such as a discounted cash flow.
Check yourself
PracticeCORE
Under the fair value measurement framework, which of the following most accurately describes what fair value represents?
Select an answer to check your understanding.