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ACC206: Financial Reporting ABC Ltd owns an asset that can be traded in four different locations,...

ACC206: Financial Reporting

ABC Ltd owns an asset that can be traded in four different locations, Markets 1 to 4. The number of trades in markets 1 to 4 are 38 trades, 40 trades, 33 trades and 30 trades respectively. The price of the asset in each of the markets is $32, $28, $25 and $31 respectively. The transaction cost in each of the markets is similar at $3. The transport cost is in each of the markets is $4, $4, $2 and $2 respectively. Under FRS 113 Fair Value Measurement, what is the fair value of this asset?

a. $24

b. $28

c. $21

d. $25

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Answer #1

Answer is option B

b. $28

Under FRS 113 Fair Value Measurement, in the absence of principal marketing the most advantageous market is considered to determine the fair value of asset. On the basis of number of trades and price of asset, the most advantageous market is market 1. To determine the fair value of the asset, the price is to be adjusted just for transportation costs but not transaction costs. Thus, fair value = price of asset in market 1 – transport cost in market 1 = 32 – 4 = $28.

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