Fair Value of Stock

This is the common question asked by those who are either new in the business Or are new in the accounting field. They first have to Confirm What do they meant by stock?

Are they talking about the Stock of Inventory? Or Shares?

If Stock of Inventory,

Then Inventory does not use Fair Value. Instead, As per IAS-2, Inventory Should be Valued at Lower of:

• Cost, and
• Net Realisable Value (NRV)

Whereas, Net Realisable Value (NRV) is the, Estimated Selling Price LESS Estimated further Cost to Sell.

With respect to the Shares,

The Fair Value will be the Current Market Share Price.

Example

The Current Market Price of Shares is $15/share and the Total number of Shares (stocks) is 100, then the Fair Value of Shares (stocks) would be 100×$15 = $1,500.

If in case The Current Market Price of Shares cannot be identified, Then the Last Closing Price of the Stocks (Shares) can be used to Value the Shares.

i.e. The Last closing price of stocks (shares) was $20/share and the Total number of Shares (stocks) are 100, then the Fair Value of Shares (stocks) would be 100×$20 = $2,000.