Orderly transaction

IFRS 13 Definition of orderly transaction: A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (eg a forced liquidation or distress sale).

A transaction that assumes there will be adequate market exposure that would allow market participants to gain sufficient knowledge about the asset or liability. In other words, it is based on the assumption that there is exposure to the market for a period before the measurement date to allow for marketing activities (information dissemination and marketing) that are usual and customary for transactions involving such assets or liabilities.Commodity

The concept of an orderly transaction is usually used in distinguishing a fair value measurement from the exit price in a distress sale or forced liquidation. To this end, it assumes that market participants have sufficient knowledge of the asset or liability, including that which would be gained through customary due diligence even if, in reality, this process may not have initiated yet, or never take place at all if the reporting entity doesn’t sell the asset or transfer the liability.

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Forced transaction

A distressed sale is a circumstance when a property, stock or other asset is sold in an urgent manner. Distressed sales often occur at a loss because funds tied up in the asset are needed within a short period of time. The funds from these assets are most often used to pay for debts, medical expenses or other emergencies.

If a distressed sale is conducted for a piece of property such as an antique or collectible art, the seller might choose to take offers that are lower than the value of the item. The seller might request offers by advertising the item herself, or she might sell the item to a pawnbroker.

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When the seller of an item deals with a pawnbroker, she will likely be limited to offers that are below the value of the item. The pawnbroker puts in lower bids because his intent is to resell the item for a higher price and turn a profit. The tradeoff with accepting an offer that is below market value is that it will provide the seller with immediate cash. Even if an item is appraised to be of greater value, a pawnbroker will still look for a way to make a profit.

Orderly transaction

Orderly transaction

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