CAF-1 · Chapter 7 · Question 10 of 15
An entity owns a timber plantation. To estimate the fair value of the trees, it has entered into a forward contract to sell the timber in two years at a fixed price. Should this contract price dictate the fair value?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) No, fair value reflects current market conditions and is not adjusted because of the existence of a contract.
Explanation
Future contract prices are not necessarily relevant in measuring fair value because fair value reflects the current market conditions in which market participants would transact.
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