Ind AS 113 does something unusual: rather than requiring fair value for any particular item, it provides a single, consistent framework for how to measure fair value whenever another standard requires or permits it. Many Ind AS standards call for fair value — financial instruments, investment property, certain PPE under the revaluation model, business combinations — and Ind AS 113 ensures they all measure it the same way. There is no equivalent standard in the AS framework, which is one reason fair value measurement is a distinctive feature of Ind AS reporting.
Objective and scope
The objective is to define fair value, set out a framework for measuring fair value, and require disclosures about fair value measurements. Ind AS 113 applies when another standard requires or permits fair value measurements or disclosures (with some exceptions, such as share-based payment transactions under Ind AS 102 and leasing transactions, which have their own measurement requirements). Importantly, Ind AS 113 explains *how* to measure fair value; it does not change *when* fair value is used.
The definition of fair value
Fair value is the 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. Several elements of this definition matter:
It is an exit price (the price to sell or transfer), not an entry price (the price to buy).
It is a market-based measurement, not entity-specific — it reflects the assumptions market participants would use, not the entity's own intentions.
It assumes an orderly transaction (not a forced sale or distress transaction) between knowledgeable, willing market participants at the measurement date.
For non-financial assets, fair value reflects the highest and best use by market participants — the use that would maximise the value of the asset, even if the entity intends a different use.
The fair value hierarchy
A central feature of Ind AS 113 is the fair value hierarchy, which categorises the inputs used in valuation techniques into three levels, prioritising observable market data over unobservable inputs:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. These are the most reliable evidence of fair value and are used without adjustment where available.
Level 2 — inputs other than Level 1 quoted prices that are observable for the asset or liability, either directly or indirectly (for example, quoted prices for similar assets in active markets, or quoted prices for identical assets in markets that are not active, or observable interest rates and yield curves).
Level 3 — unobservable inputs for the asset or liability, used when relevant observable inputs are not available. These reflect the entity's own assumptions about the assumptions market participants would use, developed using the best information available.
The level in which a fair value measurement is categorised (which drives the extent of disclosure) is determined by the lowest-level input that is significant to the measurement as a whole.
Valuation techniques
Entities use valuation techniques appropriate in the circumstances and for which sufficient data are available, maximising the use of relevant observable inputs and minimising unobservable inputs. Three widely used approaches are the market approach (using prices and other relevant information from market transactions for identical or comparable assets), the cost approach (the amount currently required to replace the service capacity of an asset — current replacement cost), and the income approach (converting future amounts, such as cash flows, to a single present value, for example through discounted cash flow techniques). Valuation techniques are applied consistently, with changes made only when they result in a measurement that is equally or more representative of fair value.
Disclosure
Ind AS 113 requires extensive disclosures to help users assess the valuation techniques and inputs used, and — for recurring Level 3 measurements — the effect of the measurements on profit or loss or OCI. Disclosures include the fair value at the reporting date, the level of the hierarchy, a description of the valuation techniques and inputs for Level 2 and Level 3 measurements, and, for Level 3, reconciliations of opening and closing balances and information about the sensitivity of the measurement to changes in unobservable inputs.
A brief illustration
A company holds three assets it must measure at fair value. The first is a listed equity share with a quoted market price — a Level 1 measurement, taken at the unadjusted quoted price. The second is an interest rate swap valued using observable market interest rates and yield curves — a Level 2 measurement, since the key inputs are observable though the instrument itself is not quoted. The third is an investment in an unlisted company valued using a discounted cash flow model built on the entity's own projections and an estimated discount rate — a Level 3 measurement, because the significant inputs are unobservable, triggering the fullest disclosures including sensitivity analysis. The same definition of fair value applies to all three; only the observability of the inputs differs.
Why there is no AS equivalent
The AS framework is more firmly grounded in historical cost and does not have a single fair value measurement standard. Where AS standards use values other than cost, they specify the basis within the individual standard rather than referring to a common fair value framework. Ind AS 113, by contrast, is a framework standard that brings consistency to every fair value measurement across Ind AS. This is part of why transitioning from AS to Ind AS introduces a more pervasive role for fair value — and the discipline of the hierarchy and disclosures that goes with it.
Common pitfalls
Frequent issues include using an entry price (purchase price) rather than an exit price; ignoring the highest-and-best-use concept for non-financial assets; misclassifying inputs within the hierarchy (and so under- or over-disclosing); adjusting Level 1 quoted prices when they should be used unadjusted; and using valuation techniques that rely on unobservable inputs when observable inputs are available.
Why this is cleaner on a unified system
Fair value measurements draw on data about the assets and liabilities being measured and feed into the financial statements, so they are more reliable when that data and the resulting accounting sit in one connected system. While valuation often involves external inputs, having the underlying asset and liability records in a single source of truth makes applying the measurement framework, categorising within the hierarchy, and producing the supporting disclosures more straightforward than reconciling across separate tools.
This article is a detailed educational summary of Ind AS 113 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of Ind AS 113 as notified under the Companies Act before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.