Chapter Two Fair value measurement and Impairment

2.1.3. Fair value at initial recognition
Fair value is the price that would be received to sell the asset or paid to transfer the liability; this is an exit price notion. When an entity acquires an asset, or assumes a liability, the price paid (or the transaction price) is an entry price. Conceptually, entry prices and exit prices are different. However, in many cases, an entry price may equal an exit price; since one party is selling an asset, that transaction is also an exit transaction.
The transaction price may not represent the fair value of an asset or liability at initial recognition if, for example, any of the following conditions exist:

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  The transaction is between related parties
  
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  It takes place under duress or the seller is forced to accept a price
  
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  The unit of account represented by the transaction is different from the unit of account for the asset or liability measured at fair value
  
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  The market in which the transaction takes place is different from that in which the entity would sell the asset or transfer the liability
  

2.1.4. Valuation methods
There are three valuation approaches to measure fair value.

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  Market approach: based on market transactions involving identical or similar assets or liabilities.
  
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  Cost approach: based on the amount required to replace the service capacity of an asset (frequently referred to as current replacement cost).
  
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  Income approach: based on future amounts (e.g. cash flows or income and expenses) that are converted (discounted) to a single present amount.
  

The fair value hierarchy does not priorities the valuation techniques to be used; instead, it prioritizes the inputs used in the application of these techniques. The selection of the valuation technique to apply should consider the exit market (i.e. the principal (or most advantageous) market) for the asset or liability and use valuation inputs that are consistent with the nature of the item being measured. Regardless of the technique used, the objective of a fair value measurement remains the same – i.e., an exit price under current market conditions from the perspective of market participants. cured