Ind AS 113 Fair Value Measurement: A Practitioner Guide for FY 2026-27
Ind AS 113 (Fair Value Measurement) is the Indian Accounting Standard that prescribes a unified framework for measuring fair value and making related disclosures in financial statements.
The Ministry of Corporate Affairs notified Ind AS 113 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I companies. There is no direct predecessor under the previous Indian GAAP; earlier guidance was scattered across standards.
For FY 2026-27, Ind AS 113 remains critical for banks, NBFCs, and investment entities. Patron's clients in these sectors often encounter complex Level 2 and Level 3 fair value measurements, especially derivatives and illiquid investments, requiring robust valuation governance.
Ind AS 113 at a Glance
Ind AS 113 establishes a single source of guidance for measuring fair value across all Indian Accounting Standards. Its core principle is that fair value reflects an exit price in an orderly transaction between market participants. The standard primarily serves companies preparing financial statements under the Ind AS framework, especially those with significant financial instruments or investment properties.
| Field | Value |
|---|---|
| Standard Number | Ind AS 113 |
| Full Name | Fair Value Measurement |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | No direct predecessor under AS framework, fair value guidance was scattered across multiple standards |
| Equivalent Standard | No direct counterpart ↔ Ind AS 113 ↔ IFRS 13 |
| Applies To | All companies required to follow Indian Accounting Standards. Ind AS 113 applies when another Ind AS requires or permits fair value measurement or disclosures about fair value measurements (with limited exceptions for share-based payment, leases, and net realisable value). |
What is Ind AS 113: Fair Value Measurement?
Ind AS 113 defines how to measure fair value whenever another Indian Accounting Standard requires or permits its use. The standard sets out a consistent framework that ensures fair value reflects the price that would be received to sell an asset or paid to transfer a liability between market participants at the measurement date.
Historically, Indian GAAP contained fragmented guidance on fair value, spread across individual standards like investments and property. The Institute of Chartered Accountants of India introduced Ind AS 113 to align with IFRS 13 issued by the International Accounting Standards Board and provide clarity on both measurement techniques and disclosure requirements.
Finance teams in listed companies, NBFCs, statutory auditors, and CA students reference this standard frequently due to its wide-ranging impact on financial reporting.
Objective of Ind AS 113
The objectives of Ind AS 113 are:
- Define fair value as 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.
- Set out a single Indian Accounting Standard framework for measuring fair value when required or permitted by other standards.
- Specify disclosures about fair value measurements so users can assess valuation techniques used and their impact on financial statements.
By achieving these objectives, Ind AS 113 supports true and fair presentation as required by Section 129 of the Companies Act, 2013. It ensures consistency in how entities determine and disclose fair values across all applicable standards.
Who Must Apply Ind AS 113?
Entities covered, applicability table
Ind AS 113 applies to all companies required to prepare financial statements under the Indian Accounting Standards roadmap notified by the Ministry of Corporate Affairs. This includes:
| Roadmap Phase | Applicability |
|---|---|
| Phase I | Listed companies with net worth ≥ Rs 500 crore from FY 2016-17 onwards |
| Phase II | Unlisted companies with net worth ≥ Rs 250 crore from FY 2017-18 onwards |
| Voluntary adopters | Any company opting into Ind AS voluntarily |
Entities must apply Ind AS 113 whenever another standard requires or permits fair value measurement or related disclosures.
Scope exclusions
Ind AS 113 does not apply to:
- Share-based payment transactions within the scope of Ind AS 102
- Leasing transactions within the scope of Ind AS 116
- Measurements similar but not equivalent to fair value (e.g., net realisable value in Ind AS 2; value in use in Ind AS 36)
When the standard does not apply
Share-based payments are measured as per requirements in Ind AS 102. Lease accounting follows Ind AS 116. Net realisable value calculations fall under inventory rules in Ind AS 2. Impairment 'value in use' follows Ind AS 36.
Key Definitions under Ind AS 113
| Term | Definition |
|---|---|
| Fair value | Price received to sell an asset or paid to transfer a liability in an orderly transaction at measurement date. |
| Active market | Market where transactions occur frequently enough to provide ongoing pricing information. |
| Principal market | Market with highest volume and activity for asset or liability. |
| Most advantageous market | Market yielding maximum proceeds from sale or minimum payment for transfer after costs. |
| Highest and best use (HBU) | Use by market participants that maximises asset’s value within its group context. |
| Fair value hierarchy | Three-level categorisation of inputs into valuation techniques, Level 1 (quoted prices), Level 2 (observable), Level 3 (unobservable). |
Recognition and Measurement under Ind AS 113
When to recognise
An entity applies Ind AS 113 whenever another Indian Accounting Standard mandates or allows measurement at fair value or requires disclosure about such measurements. For example, financial instruments classified as FVTPL under Ind AS 109 must be measured at fair value using this standard’s principles. Similarly, property measured using revaluation model under Ind AS 16 must follow this framework.
The trigger event is always set by another standard, not by management discretion, but once triggered, all aspects of measurement and disclosure fall under the purview of Ind AS 113.
Initial measurement
Fair value is determined assuming an orderly transaction between willing market participants at the measurement date, not a forced sale or liquidation scenario. For financial assets and liabilities traded on active markets (e.g., listed equity shares), quoted prices provide Level 1 inputs per Para 72-90.
For non-financial assets such as investment property or plant and equipment revalued per other standards, management must consider “highest and best use” from a market participant perspective, even if different from current use.
Three primary valuation techniques are prescribed:
Market approach, Uses prices from actual market transactions involving identical or similar assets/liabilities.
Cost approach, Measures based on current replacement cost adjusted for obsolescence.
Income approach, Uses present-value techniques such as discounted cash flows based on expected future economic benefits.
**Fair Value Formula:**
*Fair Value = 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.*
Subsequent measurement
At each reporting date where continued fair valuation is required (e.g., recurring FVTPL assets), entities must reassess using observable inputs wherever possible:
- Level 1: Unadjusted quoted prices in active markets for identical assets/liabilities.
- Level 2: Observable inputs other than quoted prices, such as yield curves or quoted prices for similar items.
- Level 3: Unobservable inputs, entity’s own assumptions reflecting what market participants would consider.
Entities must maximise reliance on observable data and minimise unobservable assumptions per Para 67-71.
If circumstances change, for example if previously unobservable inputs become observable, the level classification may shift accordingly but only if justified by input quality rather than outcome changes alone.
The Three-Level Fair Value Hierarchy
The defining feature of Ind AS 113 is its three-level hierarchy set out in Para 72-90:
- Level 1: Unadjusted quoted prices from active markets, most reliable.
- Level 2: Other directly or indirectly observable inputs including quoted prices for similar items; observable interest rates; implied volatilities.
- Level 3: Unobservable inputs requiring significant judgement, such as internal cash flow projections used when no relevant external data exists.
Disclosure requirements increase significantly from Level 1 through Level 3, with detailed reconciliations needed for Level 3 balances including sensitivity analyses showing how changes in key assumptions affect reported values.
In our audit practice we frequently observe that misclassification between Level 2 and Level 3 remains a common error among preparers, especially where management judgement plays a significant role in valuation models.
Worked Examples on Ind AS 113
Example 1: Level 1 fair value, quoted equity
Maharashtra Holdings Ltd holds one lakh shares of Reliance Industries Limited listed on BSE/NSE as FVTPL investment per Ind AS 109. On March 31st, 2026 closing price is Rs 3,200 per share, a directly observable input from an active market (Level 1).
Computation Table
| Particulars | Quantity / Rate | Amount |
|---|---|---|
| Number of shares | 1,00,000 | |
| Quoted price per share | Rs 3,200 | |
| Total fair value | Rs 32 crore |
Journal Entry:
Dr/Cr Investment in Equity Instruments / FVTPL Gain/Loss in P&L
Disclosure note references Level 1 classification within the hierarchy.
Example 2: Level 3 fair value, unlisted equity using DCF
Krishna Capital Ltd holds a twelve percent stake in an unlisted private company accounted at FVTPL. At March 31st, 2026 management uses discounted cash flow projections over five years discounted at eighteen percent, a significant assumption based on entity-specific data not directly observable externally (Level 3).
Computation Table
| Particulars | Input / Assumption | Amount |
|---|---|---|
| Stake held | Twelve percent | |
| DCF projected cash flows | Management estimates | |
| Discount rate | Eighteen percent | |
| Computed present value | Rs 8 crore |
Key disclosures include method used (DCF), significant unobservable inputs (cash flow projections; discount rate), sensitivity analysis (a one percent change alters valuation by Rs 0.45 crore), reconciliation from opening balance to closing balance for Level 3 items.
Journal Entry:
Dr/Cr Investment / FVTPL Gain/Loss in P&L
Detailed disclosure note required covering technique used and sensitivity analysis per Para 93(e)-(h).
Disclosure Requirements under Ind AS 113
Disclosures under Ind AS 113 are critical for users of financial statements to understand how fair values are determined and the impact on reported results. Schedule III to the Companies Act, 2013, mandates transparent disclosure of measurement bases, and Ind AS 113 sets out detailed requirements, especially for Level 2 and Level 3 valuations.
| Item | Requirement | Para Reference |
|---|---|---|
| Fair value at end of reporting period | Disclose by class of asset/liability and by level in the fair value hierarchy | Para 93(a) |
| Level of fair value hierarchy | For each class, disclose the level into which the measurement is categorised | Para 93(b) |
| Transfers between levels | Description of policies for determining transfers and amounts of transfers between levels for recurring measurements | Para 93(c) |
| Valuation techniques and inputs (Level 2 and Level 3) | Description of techniques and inputs used | Para 93(d) |
| Reconciliation of Level 3 measurements | Opening to closing balances showing gains/losses in P&L, OCI, purchases, sales, settlements, transfers in/out | Para 93(e) |
| Sensitivity analysis for Level 3 measurements | Effect of changing significant unobservable inputs to reasonably possible alternatives | Para 93(h) |
| Highest and best use disclosure | For non-financial assets where current use differs from highest and best use | Para 93(i) |
Auditors must ensure these disclosures are complete and accurate as part of their opinion under SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Misclassifying a valuation as Level 2 when significant unobservable inputs make it Level 3.
- Applying an entry price instead of exit price, fair value must be based on exit price.
- Ignoring highest and best use for non-financial assets; assuming current use without market participant perspective.
- Inadequate sensitivity analysis or reconciliation for Level 3 measurements.
- Omitting credit risk adjustments (CVA/DVA) for derivatives.
- Failing to analyse transaction costs when identifying principal versus most advantageous market.
Industry application notes
Banks and NBFCs:
Banks and NBFCs commonly hold derivatives, structured securities, or illiquid debt instruments requiring Level 2 or Level 3 fair value measurement. Expected credit loss (ECL) models under Ind AS 109 often rely on collateral fair values. Valuation governance is intensive due to regulatory scrutiny.
PE funds and AIFs:
Private equity funds and Alternative Investment Funds measure most investments at fair value through profit or loss under Ind AS 110. These are typically Level 3 valuations using discounted cash flow or comparable company multiples. External valuer validation is standard practice before finalising NAV statements.
Real estate companies:
Investment property measured at fair value under Ind AS 40 often falls into Level 2 or Level 3. Entities must obtain external valuer opinions (registered with IBBI or RVO) at least every three years, with detailed disclosure required regarding techniques used.
Ind AS 113 vs No direct counterpart vs IFRS: Key Differences
The table below summarises key differences in fair value measurement guidance across Indian GAAP (AS), Ind AS 113, and IFRS 13:
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Fair value definition | Various definitions across standards | Single definition (exit price between market participants) | Same as Ind AS |
| Three-level hierarchy | Limited application (e.g., AS 13 cost vs market) | Comprehensive hierarchy | Same as Ind AS |
| Highest and best use concept | Not applied | Required for non-financial assets | Required |
| Disclosure depth | Limited per individual standard | Extensive (Para 93) | Same as Ind AS |
| Valuation techniques | Limited guidance | Three approaches: market, cost, income | Same as Ind AS |
There is no direct counterpart to Ind AS 113 under Indian Accounting Standards (AS); earlier guidance was fragmented. The requirements in Ind AS 113 closely mirror IFRS 13 issued by the International Accounting Standards Board. India has not carved out any major provisions from IFRS 13 in adopting Ind AS 113.
Latest Amendments to Ind AS 113 (FY 2026-27)
No amendments have been notified to Ind AS 113 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 109](/ind-as-109-financial-instruments/), Financial instruments at FVTPL or FVTOCI use Ind AS 113 fair value framework.
- [Ind AS 16](/ind-as-16-property-plant-and-equipment/), Revaluation model for PPE uses fair value per Ind AS 113.
- [Ind AS 36](/ind-as-36-impairment-of-assets/), Fair value less costs of disposal for impairment determined per Ind AS 113.
- [Ind AS 40](/ind-as-40-investment-property/), Investment property at fair value model uses Ind AS 113.
- [Ind AS 103](/ind-as-103-business-combinations/), Business combinations measured at fair value at acquisition date.
Need Help with Ind AS 113 Compliance?
Patron Accounting LLP supports companies across India in implementing complex standards like Ind AS 113 Fair Value Measurement. Our team combines technical expertise with deep sector experience to deliver practical solutions that withstand audit scrutiny.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III Compliance
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
All companies preparing financial statements under Indian Accounting Standards must apply Ind AS 113 whenever another standard requires or permits fair value measurement or related disclosures. This includes listed companies, large unlisted companies meeting net worth thresholds, banks, NBFCs, investment entities, and voluntary adopters.
The three levels are: Level 1 (unadjusted quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs relying on entity assumptions). Classification depends on input quality used in valuation techniques per Paras 72-90.
Under Ind AS 113, fair value represents an exit price, the amount that would be received to sell an asset or paid to transfer a liability, not an entry price paid to acquire it. This distinction ensures consistency from a market participant perspective at the measurement date.
“Highest and best use” means valuing a non-financial asset based on its optimal use by market participants, even if different from current use, when measuring fair value. This maximises the asset’s potential economic benefit within its group context as required by Paras 27-29.
Entities must disclose reconciliation from opening to closing balances for each class measured at Level 3. This includes gains/losses recognised in profit or loss or OCI, purchases/sales/settlements/transfers, sensitivity analysis for key unobservable inputs, valuation techniques used, and quantitative information about those inputs per Para 93(e)-(h).
The standard permits three approaches: market approach (using prices from actual transactions), cost approach (current replacement cost), and income approach (discounted cash flows). Entities select the technique most appropriate based on available data and nature of asset/liability per Paras 62-66.
Transfers between Levels 1, 2, and 3 must be disclosed when they occur due to changes in input observability, not merely because outcomes change. Entities must describe policies governing such transfers along with amounts transferred during the period per Para 93(c).
The principal market is where the greatest volume/activity occurs; if none exists, entities identify the most advantageous market yielding maximum net proceeds after transaction/transport costs. Fair value must reflect pricing in this identified market per Paras 16-19.
Yes. Credit risk adjustments, credit valuation adjustment (CVA) or debit valuation adjustment (DVA), must be incorporated into derivative valuations under Ind AS 113. This ensures that counterparty risk is properly reflected according to Paras 42-43.
Yes. Schedule III requires disclosure of measurement bases adopted for each class of asset/liability presented on the face of financial statements or notes, including those measured at fair value under Ind AS standards such as investments or investment property.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation