Determining the principal market
The following three markets exist for a particular asset. The company has the ability to transact in all three markets (and has historically done so).
|
Market |
Price |
|
A |
CU 30,000 |
|
B |
CU 25,000 |
|
C |
CU 22,000 |
Under the principal market concept, it would not be appropriate to value identical assets at different prices solely because management intends to the sell the assets in different markets. Likewise, a consistent fair value measurement for each asset utilising a blended price that is determined based on the proportion of assets management intends to sell in each market would not be appropriate. Instead, each of the assets would be measured at the price in the market determined to be the company”s principal market.
If Market B were determined to represent the principal market for the asset being measured, each asset would be valued at CU25,000. Selling the assets in either Market A or Market C would result in a gain or loss for the company. We believe this result is consistent with one of the fundamental concepts in the fair value framework, that is, the consequences of management”s decisions (or a company”s comparative advantages or disadvantages) should be recognised when those decisions are executed (or those advantages or disadvantages are achieved).