It stands for fair market value; the price that agreed by a buyer and a seller for a specific asset or liability, in the open market under normal conditions. Both parties must be willing to transact at the prevailing market conditions, with each having reasonable knowledge of the relevant facts (price, risks, etc.) This price is arrived at taking into consideration both the general market factors affecting the price and the estimation figured out by the parties involved.
In accounting, the term “fair market value” was introduced as an alternative to the “market value“. However, both are still used interchangeably to denote the same. In pursuit of a yet better measure of value that can also account for situations where active primary markets for an asset or liability are not available, the term “fair value” is now used. That means the value of an asset or liability can still be estimated by reference to prices and rates quoted in secondary markets.
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