Question

What are the arguments for and against the use of fair value as the measurement basis for biological assets and
agricultural produce? Why do you think the IASB settled on requiring fair value?

Answer 1

Fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset and therefore provides users with more relevant information. However it has drawbacks. If the good, service, or the asset does not have an active market, then the fair value will involve estimations which would be less reliable. Also fair value may fluctuate materially even in short term, in such cases fair value at the balance sheet date would be useless for an investor.

Answer 2

Advantages of fair value.
-The impact of fair value is the result of market forces.
-Fair value the best reflects market conditions.

Answer 3

Oh fair value... the biggest headache for the accountants.