General principles

BC80 The exposure draft proposed that a fair value measurement assumes that a liability is transferred to a market participant at the measurement date because the liability that is the subject of the fair value measurement remains outstanding (ie it is owed by the entity and is not settled with the counterparty or otherwise extinguished at the measurement date). Because the liability is assumed to be transferred to a market participant, the liability remains outstanding and the market participant transferee, like the entity, would be required to fulfil it. The same concept applies to an entity’s own equity instrument, as discussed in paragraphs BC104–BC107.

BC81 In many cases, an entity might not intend (or be able) to transfer its liability to a third party. For example, an entity might have advantages relative to the market that would make it more beneficial for the entity to fulfil the liability using its own internal resources or the counterparty might not permit the liability to be transferred to another party. However, the IASB concluded that a fair value measurement provides a market benchmark to use as a basis for assessing an entity’s advantages or disadvantages in performance or settlement relative to the market (for both assets and liabilities). Therefore, when a liability is measured at fair value, the relative efficiency of an entity in settling the liability using its own internal resources appears in profit or loss over the course of its settlement, and not before.