In accounting, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset.
The derivation takes into account such objective factors as the costs associated with production or replacement, market conditions and matters of supply and demand.
Under US GAAP (ASC 820 formerly FAS 157) and International Financial Reporting Standards (IFRS 13), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
FAS 157 broadly applies to financial and nonfinancial assets and liabilities measured at fair value under other authoritative accounting pronouncements.
This is equal to the spot price after taking into account compounded interest (and dividends lost because the investor owns the futures contract rather than the physical stocks) over a certain period of time.
In its deliberations of Statement 133, the FASB revisited that issue and again renewed its commitment to eventually measuring all financial instruments at fair value.
[6] IFRS defines fair value as "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
If an entity applies the revaluation model, it will measure and report its property plant and equipment at fair value on its balance sheet.