Most advantageous market – The market that maximises the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.
Principal market – The market with the greatest volume and level of activity for the asset or liability.
An entity values assets, liabilities and its own equity instruments assuming a transaction in the principal market for the asset or liability – i.e. the market with the greatest volume and level of activity. In the absence of a principal market, it is assumed that the transaction would occur in the most advantageous market.
The ‘most advantageous market’ is the market that would either maximise the amount that would be received to sell an asset or minimise the amount that would be paid to transfer a liability, after taking into account transport and transaction costs. [IFRS 13 16 – 17]
In the absence of evidence to the contrary, the market in which the entity would normally sell the asset or transfer the liability is assumed to be the principal (or most advantageous) market. [IFRS 13 17]
The price used to measure fair value is not adjusted for transaction costs, although they are considered in determining the most advantageous market. ‘Transaction costs’ do not include transport costs. If location is a characteristic of an asset, then the price in the principal (or most advantageous) market is adjusted for transport costs. [IFRS 13 25 – 26]
The market with the greatest volume and level of activity for the asset or liability is the principal market. Because there may be buyers and sellers who are willing to pay high prices and deal outside the principal market, the most advantageous market may not be the principal market.
However, an entity may assume that the principal market is the most advantageous market provided that the entity can access the principal market.
Finally, as a practical matter, it would be reasonable to presume that the principal market in which an entity actually transacts would be the most advantageous market, consistent with rational economic behavior. Some respondents said that applying a most advantageous view would require continuous evaluation of secondary markets to determine whether quoted prices for identical assets are more advantageous.
Most advantageous market
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