The market that has, in comparison with other markets, the greatest volume and highest activity level for the trading of specific assets or liabilities. In addition to that, this market is where an entity normally transacts, acquiring or selling assets and assuming or transferring liabilities. In the absence of a principal market, the entity’s management has to identify the most advantageous market, which is one that maximizes the amount that would be received to sell the asset or transfer the liability, after deducting transaction costs and other relevant costs

The existence of a principal market for the asset (or liability) would help determine fair value. In determining the principal market, fair value is not adjusted for costs incurred (but these transaction costs are usually considered in determining the most advantageous market). For instance, agent’s commission and legal fees are not considered in the price used to fair value a property.