When to apply Ind AS 113
Ind AS 113 explains how to measure fair value and what to disclose when another Ind AS requires or permits it. The referring standard determines whether to use fair value, the unit of account and where changes are recognised. Ind AS 113 has scope and disclosure exceptions: examples include share-based payments under Ind AS 102, leasing transactions accounted for under Ind AS 116, and measurements such as net realisable value and value in use, which are distinct from fair value. Separate disclosure exceptions in paragraph 7 include assets for which recoverable amount under Ind AS 36 is fair value less costs of disposal.
Find the exit price in the relevant market
Fair value is the market participant price on the measurement date for an orderly sale of an asset or transfer of a liability. An orderly transaction allows customary market exposure; a forced liquidation is different. Use the assumptions that knowledgeable, willing and able market participants would apply. An entity does not need to identify specific buyers or sellers. Its intention to hold an asset or settle a liability does not determine fair value.
Use the accessible principal market, which has the greatest volume and level of activity for the item. Only if there is no principal market, select the accessible most advantageous market by comparing proceeds or transfer payments after transaction and transport costs as relevant. Use reasonably available information; absent contrary evidence, presume that the market where the entity would normally transact is the principal or most advantageous market, as applicable. Transaction costs help compare markets but are excluded from the fair value measurement. Deduct transport costs from the market price if location is a characteristic of the asset.
For a non-financial asset, evaluate the highest and best use a market participant could achieve, on its own or with complementary assets and liabilities as relevant. The use must be physically possible, legally permissible and financially feasible, including conversion costs and an adequate return. Presume current use unless market or other evidence indicates a higher value from an alternative use.
Select an appropriate valuation approach
| Approach | How it works | Common methods and uses |
|---|---|---|
| Market | Uses transaction prices and relevant market information for identical or comparable items. | Listed prices, comparable companies and precedent transactions. Adjust comparables only where supported and consistent with the unit of account. |
| Income | Converts expected future amounts into a present value that reflects market participant assumptions. | DCF, option pricing, excess earnings for customer relationships and relief from royalty for brands or licences. |
| Cost | Estimates the current cost to replace equivalent service capacity, allowing for physical, functional and economic obsolescence. | Specialised plant, machinery and other assets where equivalent utility can be estimated. |
Use suitable techniques supported by sufficient data. Maximise the use of relevant observable inputs and minimise unobservable inputs. The approach does not determine the hierarchy level: a model can be Level 2 if all significant inputs are observable or Level 3 if a significant input is unobservable. When multiple techniques are useful, evaluate the range and select the most representative point.
Classify the entire measurement by its significant inputs
| Level | Input test | Common applications, subject to the facts |
|---|---|---|
| 1 | Unadjusted quoted price in an active market for the identical asset or liability, accessible on the measurement date. | Liquid listed shares and exchange-traded instruments. Use the quote without adjustment subject to the limited circumstances in paragraph 79. A blockage discount is prohibited. |
| 2 | Other directly or indirectly observable inputs. For an instrument with a specified term, inputs must be observable for substantially its full term. | Similar instrument quotes, identical or similar quotes in inactive markets, observable yield curves, credit spreads and implied volatilities. |
| 3 | A significant unobservable input. Develop it using the best available information and reflect market participant assumptions, including risk. | Unlisted equity or bespoke instruments where significant cash flows, growth, risk or valuation adjustments are unobservable. |
Under paragraph 73, classify the measurement in its entirety at the level of the lowest input that is significant to it. A significant unobservable adjustment can therefore move a measurement based on Level 2 market data into Level 3. A fall in trading activity requires further analysis; it does not automatically make observed transactions disorderly or establish a new hierarchy level.
Recurring measurements, non-recurring measurements and disclosures
| Type | When it arises | Examples |
|---|---|---|
| Recurring | Another Ind AS requires or permits the fair value measurement in the balance sheet at each reporting period end. | Financial instruments measured at FVTPL or FVOCI under Ind AS 109. |
| Non-recurring | Another Ind AS requires or permits the measurement in particular circumstances. | An asset classified as held for sale under Ind AS 105 when the lower amount is fair value less costs to sell. Acquisition-date measurements may have separate disclosure requirements under Ind AS 103. |
| Fair value disclosed only | The asset or liability is measured on another basis in the balance sheet, but fair value is disclosed. | Investment property under Ind AS 40 is generally carried using the cost model. Check paragraph 97 of Ind AS 113 for the applicable fair value disclosures. |
Apply paragraphs 91–99 by class of asset and liability. Paragraph 93 requires the measurement and hierarchy level for recurring and non-recurring measurements within its scope and the reasons for non-recurring measurements. For Levels 2 and 3 describe the techniques and inputs and explain changes in technique; for Level 3 provide the applicable quantitative information about significant unobservable inputs and describe the valuation processes. For recurring Level 3 measurements reconcile opening to closing balances under paragraph 93(e), including transfers in and out separately, and identify the required unrealised profit or loss for positions still held under paragraph 93(f).
Paragraph 93(h)(i) calls for a narrative sensitivity description for recurring Level 3 measurements when a change in the relevant unobservable inputs could result in significantly higher or lower fair value, including interrelationships where applicable. Paragraph 93(h)(ii) additionally requires the effect and calculation method for recurring Level 3 financial assets or liabilities if reasonably possible alternative assumptions would change fair value significantly, applying the significance test in the standard. The same quantitative sensitivity table is not required for every Level 3 asset.
Six worked examples
1. Principal market and transport costs
Bharat Commodities holds 1,000 tonnes. Accessible Market A trades 10,000 tonnes a month at ₹50,000 per tonne, with ₹1,500 in transaction costs and ₹2,000 in transport costs per tonne. Market B trades 80,000 tonnes at ₹52,000 per tonne, with ₹3,000 and ₹2,500 respectively. Assume the volumes reflect activity for the same asset and location is a characteristic of the metal. Market B is principal, so fair value is ₹52,000 − ₹2,500 = ₹49,500 per tonne, or ₹4,95,00,000 total. If there were no principal market, the two markets would tie on estimated net proceeds: ₹50,000 − ₹1,500 − ₹2,000 = ₹46,500 and ₹52,000 − ₹3,000 − ₹2,500 = ₹46,500. Document the market used in the tie; do not deduct transaction costs from its fair value.
2. Highest and best use of factory land
Zenith Industrial owns five acres. Comparable industrial land at ₹5 crore per acre implies ₹25 crore. Assume site conditions and zoning support commercial conversion and the comparable price of converted land is ₹15 crore per acre. Deduct a ₹2 crore per acre conversion charge and ₹3 crore total demolition cost. The indicated commercial use value is ₹75 crore − ₹10 crore − ₹3 crore = ₹62 crore. This supports commercial use if a market participant could make the conversion, earn the required return and would incur no other material adjustments for time, risk or complementary assets. In an acquisition, assess the land and existing improvements under the applicable Ind AS 103 and Ind AS 113 valuation premise and avoid counting the same benefits twice.
3. Observable bond valuation inputs
Apex holds ₹20 crore face value of three-year bonds paying 8.50% annually. Assume the valuation date is a coupon date immediately after payment, all remaining coupons are paid annually, the bonds are redeemed at par, and comparable data support a flat 7.00% benchmark plus 150 basis points (1.50 percentage points) for relevant credit and liquidity risks. The resulting yield is 8.50%. Discounting three annual ₹1.70 crore coupons and ₹20 crore principal at that yield gives ₹20 crore. It is Level 2 if the significant inputs are observable for substantially the full term and no significant unobservable adjustment is needed. An unquoted bond is not automatically Level 2.
4. Level 3 startup equity valuation
Alpha Ventures holds 10% of CloudByte, an unlisted startup, at FVTPL. Illustrative year-end free cash flows to the firm are ₹5, ₹8, ₹12, ₹18 and ₹25 crore, discounted at a 16% weighted average cost of capital. Their present values are ₹4.3103, ₹5.9453, ₹7.6879, ₹9.9412 and ₹11.9028 crore, totalling ₹39.79 crore before any rounding of the components. At 5% perpetual growth the year-five terminal value is ₹25 crore × 1.05 ÷ (0.16 − 0.05) = ₹238.64 crore. Its present value is ₹113.62 crore; enterprise value is ₹153.41 crore. Less ₹13.40 crore net debt gives ₹140.01 crore equity value and approximately ₹14.00 crore for 10%, using unrounded inputs. Assume a pro rata interest with no separately supported adjustment for share rights, liquidity or the unit of account. The significant unobservable cash flow, growth and risk assumptions make this a Level 3 measurement.
5. Recalculate the effect of changing one DCF input
The baseline in Case 4 is 16% WACC and 5% growth. Recompute the full valuation for each change, holding the other input and net debt fixed. Amounts below are changes from the unrounded baseline, in ₹ crore. For this FVTPL investment the stake column also shows the illustrative change in profit or loss, all else equal. Consider whether the alternative assumptions are reasonably possible and significant for the entity, and explain material interrelationships separately.
| Input changed | Revised input | Equity value change (₹ crore) | 10% stake value change (₹ crore) |
|---|---|---|---|
| WACC +1 percentage point | 17.00% | -15.01 | -1.50 |
| WACC −1 percentage point | 15.00% | 18.11 | 1.81 |
| Terminal growth +0.50 percentage point | 5.50% | 5.98 | 0.60 |
| Terminal growth −0.50 percentage point | 4.50% | -5.46 | -0.55 |
6. From Level 3 to Level 1 after listing
Sigma Capital starts 1 April 2024 with its BioTech stake at ₹10 crore, measured using a Level 3 DCF. BioTech lists on 15 November 2024. At 31 March 2025, assume an accessible active market for the identical shares and no Level 1 exception. The unadjusted quote multiplied by the quantity values the holding at ₹18 crore. With unchanged holdings, no other flows and FVTPL classification, the illustrative full-period gain is ₹8 crore. The Level 3 reconciliation under paragraph 93(e)(iv) reports the transfer out and reason. Paragraph 95 requires a disclosed and consistently applied transfer timing policy. Under a period-end policy the example’s transfer amount is ₹18 crore; a policy using the date of the event needs the fair value on the actual transfer date. Paragraph 93(c) separately addresses transfers between Levels 1 and 2.
Practical controls and FAQs
- Who can perform the valuation? Ind AS 113 does not mandate an external or registered valuer for every Level 2 or Level 3 measurement. Determine whether Section 247 of the Companies Act or another applicable requirement calls for one. Consider a qualified specialist for complex measurements and review the evidence, assumptions and results.
- Can a listed 15% holding take a blockage discount? For a position in identical instruments traded in an active market, apply paragraph 80: quoted price multiplied by quantity. The size of the position alone does not justify a discount.
- How do I evaluate a thin market? Examine recent transactions, differences between quotes, bid–ask spreads and available volume. Use Appendix B to assess whether volume and activity have fallen significantly and whether available transactions are orderly. Keep a record of the basis for relying on or adjusting market data.
- How are liabilities and own equity instruments measured? Apply the transfer premise under paragraphs 34–47. The liability remains outstanding and the transferee must fulfil it; non-performance risk, including own credit risk, is reflected. Consider identical items held by others as assets or use another appropriate technique if necessary. With other factors unchanged, wider own credit spreads can lower a debt liability’s fair value; the applicable reporting standard determines the presentation of the change.
- Can transaction price be fair value at initial recognition? It can, but assess paragraph B4 factors such as related-party terms, duress, a different unit of account or a different market. A related-party price can be used when there is evidence of market terms. The applicable standard, such as Ind AS 109 for a financial instrument, governs recognition of a day-one difference.
- What should the valuation file contain? Keep source quotes and timestamps, the market and unit of account conclusion, model and assumptions, significance assessment, movement schedule and supporting disclosures. Reconcile valuation changes and hierarchy transfers separately.