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Fair Value Adjustment


An accounting adjustment to the fair value of an item (an asset/ a liability) so that it is marked to the price that would be received to sell it (if an asset) or paid to transfer it (if a liability). This involves a reassessment of fair value to account for considerable variations from an item’s current carrying amount (or book value, specifically, net book value or NBV).

The adjustment is made by debiting an increase or crediting a decrease in the fair-value change to an account dubbed “fair value adjustment” (of a respective item, such as held-for-trading securities) and available-for-sale securities). An entity, holding such securities, will need to account for any temporary price changes at the end of the period for such securities in its financial statements. Such price changes will create differences between the cost of these items (as recognized on the date of acquisition) and their fair value. A fair value adjustment journal entry needs to be made at the end of the period, reflecting this reality.



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