With the push towards fair value accounting, Aswath Damodaran (NYU Stern School of Business) recently offered his “simple definition (and test) of fair value” in his blog Musings on Markets:
“If an asset is valued at fair value, the appraiser (or his client) should be indifferent to being either a buyer or a seller at that value. If you are an appraiser valuing your business for tax purposes, would you really be willing to sell your business at the appraised value? If the answer is yes, you have stayed true the notion of fair value. If the answer is no, the talk about fair value is just talk... If you are the tax authority valuing the same business (for tax purposes), would you be willing to buy the business at the appraised value? If the answer is no, you too are guilty of hypocrisy.”
Read the full blog post here.
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