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12 December, 04:27

A company owns a financial asset that is actively traded on two different exchanges (market A and market B). There is no principal market for the financial asset. The information on the two exchanges is as follows

Quoted price of asset - Transaction costs

Market A: $1,000 - $ 75

Market B: 1,050 - 150

What is the fair value of the financial asset?

A. $ 900

B. $ 925

C. $1,000

D. $1,050

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Answers (1)
  1. 12 December, 06:12
    0
    C. $1,000

    Explanation:

    The transaction is believed to have happened in the principal market for the liability or asset. When there is no present market like that, it is believed to happen market that is in more advantage. The market that is more advantage is the market in which the certain reporting entity can utilize the amount they received for selling the asset or minimize the amount paid for transferring the liability, after considering transportation and transaction and costs. The fair value is the price in that market with no adjustment for transaction costs. The entity will be able to receives $925 in only one condition, that is, if the asset is sold in Market X, but only $900 in Market Y. Therefore, Market X is the has more advantage, making the the fair value is $1,000. As our answer
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