UK Accounting Glossary
The fair market value of a stock or similar commodity is the price which an informed buyer would be willing to pay, and a seller would be willing to sell.
Hypothetically, fair market value is determined by open-market consensus between buyers and sellers who each have full knowledge of the property being sold. In reality, fair market value is often established by buyers and sellers who each have different and (often) incomplete knowledge. Fair market value is often used for tax purposes; fair market value on the date of death may be used to establish a later tax basis for any heirs. For stocks, fair market value is often determined by applying closing prices on a selected day to a portfolio. Fair market value can also be used to help establish an investor’s net worth.
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This glossary post was last updated: 9th February 2020.