Fair value
In one sentenceThe price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Simply put
Fair value is a look at the market today, not at what you paid on the purchase date. The best evidence of it is a quoted price in an active market, such as the price of a listed share; otherwise it is estimated using valuation techniques (under IFRS 13).
Not all assets are measured at fair value; inventory, for example, is measured at the lower of cost and net realizable value.
Worked example
A company bought listed shares for 100,000 SAR, and at year end their market price had become 120,000 SAR.
Purchase cost100,000
Market price at year end (fair value)120,000
Change in fair value = 120,000 − 100,00020,000 SAR
Don't confuse it with
Net realizable valueNet realizable value is specific to the business (its selling price less its costs), while fair value is the market price for any participant.