market value

(noun)

The price which a seller or insurer might reasonably expect to fetch for goods, services or securities on the open market.

Related Terms

Examples of market value in the following topics:

  • Lower of Cost or Market

    • In lower of cost or market (LCM), inventory items are written down to market value when the market value is less than the cost of the items.
    • The criterion for reporting this is the current market value.
    • Under LCM, inventory items are written down to market value when the market value is less than the cost of the items.
    • The company then values each class at lower its cost or market amount.
    • Explain how a would use the Lower of Cost or Market to value inventory

  • Fair Value Method

    • The ownership of less than 20% creates an investment position carried at fair market value in the investor's balance sheet.
    • In accounting, fair value (also knows as "fair market value") is used as a certainty of the market value of an asset (or liability) for which a market price cannot be determined (usually because there is no established market for the asset).
    • This is used for assets whose carrying value is based on mark-to-market valuations; for assets carried at historical cost, the fair value of the asset is not used.
    • Since market transactions are often not observable for assets such as privately held businesses and most personal and real property, fair value must be estimated.
    • Fair market value (FMV) is an estimate of the market value of a property.

  • Basic Components of Asset Valuation

    • Relative value models determine value based on the observation of market prices of similar assets.
    • Common terms for the value of an asset or liability are fair market value, fair value, and intrinsic value.
    • The general rule on non-cash exchanges is to value the non-cash asset received at its fair market value or the fair market value of what was given up, whichever is more clearly evident.
    • Neither amount may adequately represent the actual fair market value of either asset.
    • An old asset's book value is usually not a valid indication of the new asset's fair market value.

  • Loss Restoration

    • Fixed asset values can be revised to reflect an increase or decrease in value; upward revisions can recover earlier impairment losses.
    • Under US GAAP, once an asset is impaired its value cannot be increased regardless of what its fair market value is; once the value of an asset is decreased, it stays at that value unless its market value declines again.
    • US GAAP does require that a business impair its assets if its fair market value decreases.
    • Under International Financial Reporting Standards, once a fixed asset has been revalued its book value can be adjusted periodically to market value using the cost model or the revaluation model.
    • Only assets accounted for under the revaluation model can have their book value adjusted to market value.

  • Assessing Fair Value

    • Companies must calculate the fair market value for these available for sale securities at the end of each subsequent accounting period.
    • While holding onto the securities the company must calculate the fair market value for these securities at the end of each subsequent accounting period.
    • The difference between the purchase price and the current fair market value results in an unrealized gain or loss.
    • At the end of each reporting period, the investments are revalued to fair value (market
    • Explain why a company calculates the fair market value of available for sale securities

  • Impairment Recognition

    • Once an asset has been revalued, fluctuations in market value are calculated periodically.
    • the asset is set for disposal before the end of its useful life A loss on impairment is recognized as a debit to Loss on Impairment (the difference between the new fair market value and current book value of the asset) and a credit to the asset.
    • A loss on impairment is recognized as a debit to Loss on Impairment (the difference between the new fair market value and current book value of the asset) and a credit to the asset.The loss will reduce income in the income statement and reduce total assets on the balance sheet.
    • After assessing the amount of the damage, the owner calculates that the building's market value has fallen to USD 12,000.
    • The Loss on Impairment is calculated to be USD 8,000 (20,000 book value - 12,000 market value)

  • Current Issues in Reporting and Disclosure

    • Mark-to-market or fair value accounting refers to accounting for the fair value of an asset or liability based on the current market price, for similar assets and liabilities, or based on another objectively assessed "fair" value.
    • Mark-to-market accounting can change values on the balance sheet as market conditions change.
    • Mark-to-market accounting can become inaccurate if market prices change unpredictably.
    • It provides that qualified security dealers who elect mark to market treatment shall recognize gain or loss as if the property were sold for its fair market value on the last business day of the year, and any gain or loss shall be taken into account in that year.
    • The intrinsic value method, associated with Accounting Principles Board Opinion 25, calculates the intrinsic value as the difference between the market value of the stock and the exercise price of the option at the date the option is issued (the "grant date").

  • Accounting Methodologies: Amortized Cost, Fair Value, and Equity

    • Fair value, also called fair price, is a concept used in accounting and economics, defined as a rational and unbiased estimate of the potential market price of goods, services, or assets, taking into account such objective factors as:
    • These securities are reported at fair value, with unrealized gains and losses included in earnings.
    • The ownership of less than 20% creates an investment position carried at historic book or fair market value (if available for sale or held for trading) in the investor's balance sheet.
    • Fair value, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset.
    • Explain the difference between amortized cost, fair value and the equity method for reporting debt securities

  • Bond Valuation Method

    • Whether the amount the business will receive equals its face value depends on the difference between the bond's contract rate and the market rate of interest at the time the bond is issued .
    • Regardless of what the contract and market rates are, the business must always report a bond payable liability equal to the face value of the bonds issued.
    • If the market rate is greater than the coupon rate, the bonds will probably be sold for an amount less than the bonds' face value and the business will have to report a "bond discount. " The value of the bond discount will be the difference between what the bonds' face value and what the business received when it sold the bonds.
    • If the market rate is less than the coupon rate, the bonds will probably be sold for an amount greater than the bonds' value.
    • If the market and coupon rates differ, the issuing company must calculate the present value of the bond to determine what price to charge when it sells the security on the open market.

  • Calculating Fair Value

    • In accounting, fair value is used as an approximation of the market value of an asset (or liability) for which a market price cannot be determined (usually because there is no established market for the asset).
    • When an active market does not exist other methods have to be used to estimate the fair value.
    • Assumptions used to estimate fair value should be from the perspective of an unrelated market participant.
    • This is used for assets whose carrying value is based on mark-to-market valuations; for assets carried at historical cost, the fair value of the asset is not used.
    • Fair value is defined as a rational and unbiased estimate of the potential market price of a good, service, or asset.