What is Fair Value?
Fair value is the amount at which an asset, such as property or stock, could be exchanged between knowledgeable and willing parties at the inception of the leased asset. Unlike the market value, supply, and demand don’t impact fair value. It is harder to figure out the fair value for an asset if there is not an active market for it.
How do you determine Fair Value?
Fair value is typically calculated by researching what a similar item has already sold for. It also involves analyzing profit margins, future growth rates, and risk factors. The calculation differs depending on the accounting method used, as well as the type of data.