Question 16Q - Intermediate Accounting (Kieso)

Question

What is the definition of fair value?

Step-by-Step Solution

Answer

The term fair value in accounting refers to the physical value of an asset, product, stock, or security.

Definition of Fair Value

Fair value is the selling price of a property agreed upon by a willing buyer and seller. The fair value of a stock is ascertained by the market, where the underlying asset or liability is bought and sold. It helps in determining the profit or loss at the time of selling any asset or liability.

Advantages of fair value

• It helps in determining the minimum amount of selling for any asset or liability. 
• It is useful for computing the accurate amount of depreciation. 
• It provides useful information to be included in the balance sheet, further providing the required information to the stakeholders.