UK Accounting Glossary
The amount at which an asset or liability could be exchanged in an arm’s-length transaction between a willing buyer and a willing seller.
Fair value is the price at which supply and demand meet. Fair value not only assumes that neither the buyer nor the seller are in any way forced to make the transaction; fair value also assumes that both the buyer and the seller have reasonable knowledge of relevant facts. Fair value reflects the price at which a seller is willing to part with his item in exchange for money and a buyer is willing to part with her money in exchange for the item. Fair value does not necessarily reflect an item’s intrinsic worth (e.g. the value of the materials used to make the item). An item’s fair value is based on a comparable market analysis (in other words, an item’s fair value is determined by the price at which similar items recently sold for).
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This glossary post was last updated: 23rd December 2018.