Ind AS 113: Fair Value Measurement — Detailed Guide

Standard orientation

What Ind AS 113 is designed to achieve

Define fair value, establish a single framework for measuring fair value and require disclosures about fair-value measurements.

Scope: Applies when another Ind AS requires or permits fair value measurements or fair-value-based disclosures, subject to exclusions for share-based payment, leasing measurements and measurements similar to but not equal to fair value such as net realisable value and value in use.

Definition

Exit price in an orderly transaction between market participants at measurement date.

Market

Use the principal market—or most advantageous market if no principal market.

Non-financial asset

Measure using highest and best use that is physically possible, legally permissible and financially feasible.

Hierarchy

Level 1 quoted prices, Level 2 observable inputs, Level 3 unobservable inputs.

Reading method: Requirements are paraphrased and grouped where they form one integrated rule. Apply the current notified text for final conclusions.

Full standard map

Paragraph-by-paragraph register

Paragraphs	Requirement and simple decode
1–4	Objective Creates one fair-value framework and disclosure model.
5–7	Scope Applies to required/permitted fair-value measures and disclosures with specified exclusions.
8	Measurement and disclosure exceptions Some disclosure requirements do not apply to plan assets, recoverable amount based on FVLCD and certain retirement-benefit assets.
9	Definition Fair value is the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date.
11–14	Asset or liability and unit of account Consider characteristics market participants would consider; unit of account is determined by the standard requiring measurement.
15–16	Transaction Assume an orderly transaction in the principal market, or most advantageous market when no principal market exists.
17–21	Market access and price The entity need not exhaustively search all markets but must have access; use the market price even if another market produces a more advantageous net amount.
22–23	Market participants Use independent, knowledgeable, able and willing market participants, not entity-specific intentions.
24–26	Price and transaction costs Fair value is an exit price. Transaction costs are excluded, while transport costs can adjust price when location is an asset characteristic.
27–29	Highest and best use For non-financial assets, use the market-participant use maximising value, considering physical, legal and financial feasibility.
30–33	Valuation premise Measure non-financial assets in combination with other assets/liabilities or standalone, consistent with highest and best use.
34–36	Liabilities and own equity Assume transfer to a market participant; the liability remains outstanding and own equity is transferred, not cancelled.
37–39	Quoted transfer instruments Use quoted price of identical item held as asset when available, adjusted for asset-specific restrictions when appropriate.
40–41	Non-performance risk Liability fair value includes own credit and other non-performance risk, assumed unchanged before and after transfer.
42–45	Restrictions and third-party credit enhancement Consider restrictions and account for inseparable credit enhancements consistently.
46–49	Demand deposits and offsetting portfolios Demand-deposit liability is not below amount payable on demand; portfolio exception may apply for managed market/credit risk exposures.
57–60	Initial recognition Transaction price may differ from fair value because entry and exit prices, markets, related parties, bundled transactions or unit of account differ.
61–66	Valuation techniques Use market, cost and income approaches appropriate to circumstances; maximise observable inputs and use calibration.
67–71	Consistency and changes Use techniques consistently; change when equally or more representative, treated as a change in accounting estimate.
72–73	Fair-value hierarchy Hierarchy prioritises inputs, not valuation techniques; classify entire measurement by lowest-level significant input.
76–80	Level 1 Unadjusted quoted prices in active markets for identical items accessible at measurement date.
81–85	Level 2 Observable inputs other than Level 1, including quoted similar items, yield curves, volatilities and credit spreads.
86–90	Level 3 Unobservable inputs reflecting market-participant assumptions, including risk adjustments.
91–99	Disclosure objective and classes Disclose valuation techniques/inputs and effects on P&L/OCI, using appropriate classes and hierarchy levels.
93	Recurring and non-recurring disclosures Disclose fair value, hierarchy, transfers, techniques, inputs, Level 3 reconciliation, unrealised gains/losses and sensitivity.
94–99	Class determination and narrative Classes may differ from statement line items; disclose policies for transfers and enough detail for reconciliation.
Appendix A	Defined terms Includes active market, entry/exit price, highest and best use, observable/unobservable inputs and principal market.
Appendix B	Application guidance Covers valuation approaches, present value, restrictions, inactive markets, bid-ask spreads, own equity and portfolio exception.

Major areas decoded

Technical requirements in simple language

Fair value is market-based

Entity-specific plans, synergies and distress pricing do not determine fair value unless market participants would share them.

Principal market first

The most advantageous market is used only when there is no principal market; transaction costs help identify the market but are excluded from fair value.

Highest and best use

Current use is presumed highest and best unless market or other evidence suggests an alternative use maximises value.

Day-one differences

A transaction price is often fair value, but related-party terms, different markets or bundled elements can create differences.

Hierarchy follows inputs

A discounted cash-flow model can be Level 2 or Level 3 depending on significant inputs.

Level 3 governance

Unobservable inputs require market-participant calibration, valuation controls, back-testing and sensitivity disclosure.

Own credit risk

A liability’s fair value can decrease when the issuer’s own credit worsens; presentation of changes may be governed by Ind AS 109.

Visual learning

Finin2min decision map

Editable SVG and high-resolution PNG versions are included in the batch assets.

Exceptions and highlights

What professionals frequently overlook

Transaction costs are excluded from fair value but transport costs can adjust when location is an asset characteristic.
Blockage discounts are not applied to Level 1 quoted prices merely because the holding is large.
Highest and best use applies to non-financial assets, not financial assets or liabilities.
Fair value assumes orderly, not forced, transactions.
A quoted price in the principal market is used even if another market provides a better net price.
The fair-value hierarchy classifies the whole measurement by the lowest significant input.
Own credit risk is included in liability fair value.
Bid-ask spread conventions must be consistently applied and representative of exit price.

Practical application

Transaction examples

Fact pattern

Treatment

Reason

Listed equity on active exchange

Level 1

Use unadjusted quoted price.

Corporate bond valued using observable yield curve and spread

Level 2

Significant inputs are observable.

Unlisted start-up DCF with entity-specific forecasts

Likely Level 3

Significant inputs are unobservable.

Land currently used as warehouse but zoned for high-rise

Assess alternate use

Use highest and best use if legally, physically and financially feasible.

Commodity at remote location

Market price less transport

Location is an asset characteristic.

Own issued bond

Include own credit risk

Measure transfer of liability to market participant.

Accounting mechanics

Illustrative journal entries

Entries are simplified and may require tax, foreign-exchange or presentation adjustments.

FVTPL asset increase

Dr Financial asset Cr Fair value gain

FVOCI debt increase

Dr Financial asset Cr OCI — FVOCI reserve

Investment property disclosure only under Ind AS 40

No journal solely because disclosed fair value differs from cost-model carrying amount

Level 3 impairment interaction

Journal follows the standard requiring measurement, not Ind AS 113 itself.

CA / finance / boardroom cases

Applied case studies

1. Principal versus advantageous market

Applied case

An asset trades mostly in Market A at ₹100 with ₹4 transaction cost and in Market B at ₹102 with ₹1 cost. Market A is principal.

Finin2min analysis: Use Market A’s ₹100 price, adjusted only for transport if relevant; transaction costs do not reduce fair value.

2. Large listed holding

Applied case

An entity owns 25% of a listed company and believes selling the block would depress price.

Finin2min analysis: Use Level 1 quoted price without blockage discount, subject to unit-of-account requirements in the relevant standard.

3. Alternative land use

Applied case

Industrial land could be converted to residential use only after uncertain regulatory approval.

Finin2min analysis: Alternative use must be legally permissible at measurement date from a market-participant perspective; unsupported future rezoning cannot be assumed.

4. Inactive market

Applied case

Trading volume collapses and quoted spreads widen sharply.

Finin2min analysis: Assess whether transactions remain orderly and use valuation techniques with appropriate risk adjustments; inactivity does not automatically make all prices unusable.

5. Level classification

Applied case

A DCF uses observable government yield but an unobservable 8% liquidity premium that is significant.

Finin2min analysis: Classify the entire fair-value measurement as Level 3.

Global comparison

Ind AS versus IFRS and US GAAP

Topic	Ind AS	IFRS	US GAAP
Definition	Market-participant exit price.	Aligned with IFRS 13.	ASC 820 is substantially converged.
Hierarchy	Levels 1, 2 and 3 by inputs.	Aligned.	Substantially aligned.
Day-one gain	Recognised only as allowed by the relevant Ind AS and reliable fair-value evidence.	Broadly aligned.	US GAAP topic-specific rules differ.
Portfolio exception	Permitted for managed market/credit risk portfolios if criteria met.	Aligned.	Similar practical expedient exists.
NAV practical expedient	No identical broad US-style NAV expedient.	IFRS treatment differs from US GAAP.	US GAAP permits NAV practical expedient for qualifying investments.

Implementation lens

Implications for key stakeholders

Valuation team

Select market, technique, inputs and calibration.

Finance

Determine unit of account and relevant accounting standard.

Risk / Treasury

Provide market, credit, liquidity and volatility data.

Operations / Legal

Support highest-and-best-use and restrictions.

Audit committee

Challenge Level 3 assumptions and sensitivities.

Quality-control watchlist

Common errors and exam traps

Using entry price automatically as fair value.
Choosing the most advantageous market despite an identifiable principal market.
Deducting transaction costs from fair value.
Applying entity-specific intention instead of market-participant assumptions.
Using a blockage discount on Level 1 securities.
Confusing valuation technique with hierarchy level.
Ignoring own credit risk in liability valuation.
Calling an input observable merely because management can estimate it.
Omitting Level 3 reconciliation and sensitivity.
Failing to calibrate a model to transaction price when appropriate.

Finin2min Q&A

Frequently asked questions

1. What is fair value?

An exit price in an orderly market-participant transaction at measurement date.

2. Principal or most advantageous market?

Use the principal market; use the most advantageous only if no principal market exists.

3. Are transaction costs deducted?

No, but transport costs may adjust for location.

4. What determines hierarchy level?

The lowest-level significant input to the entire measurement.

5. Does highest and best use apply to liabilities?

No; it applies to non-financial assets.

6. Is Ind AS 113 itself a recognition standard?

No. Another Ind AS determines when fair value is required or permitted.

Two-minute revision

Finin2min cheat sheet

IDENTIFY UNIT → PRINCIPAL MARKET → MARKET PARTICIPANTS → EXIT PRICE → TECHNIQUE → MAXIMISE OBSERVABLE INPUTS → LEVEL 1/2/3 → DISCLOSE

Validation register

Primary and authoritative sources

ICAI Compendium 2025–26 Volume IPrimary or authoritative validation source.
Open source ↗

ICAI Final Course material — Ind AS 113Primary or authoritative validation source.
Open source ↗

IFRS Foundation — IFRS 13Primary or authoritative validation source.
Open source ↗

Review date: 26 June 2026. Recheck later MCA notifications and ICAI compendiums before applying to a later period.