In determining the fair value of an asset or liability, would the fair value of the asset or the fair value of the liability be

Question

masya89 [10]

1 year ago

8

In determining the fair value of an asset or liability, would the fair value of the asset or the fair value of the liability be

determined using an entry price or an exit price?

Business

1 answer:

padilas [110] · Answer 1 · 2023-12-17T05:14:35+03:00

In determining the fair value of the asset or liability the exit price should be used. A fair price means the price that the asset or liability would get when sold in the market. So, the pair price will be determined by calculating the market price of such goods or liabilities or at what rate these goods or liabilities will be sold in the market.

The entry price would not be the correct price as the asset or liability may have been bought by the company many years ago. So based on this, the price of these assets would have increased as in the case. Sometimes the prices of these assets would have also decreased. The same reason is applicable to liabilities also.

This is known as the appreciation and depreciation of assets and liabilities. So to remove the effect of this the fair value will be based only on the exit price.