fair value of financial asset
why and how fair value of the financial asset and financial liability are the same and so the net fair value is zero
- Kwok WaiLv 71 十年前最愛解答
Take residential property as an example. People needs to borrow money from the bank which amounted to 70% of the purchase price of the residential property in order to buy the property. This is the financial liability of the property. However, if the fair value (we assume that it equals to the market value of the property) falls, the net asset (fair) value drops correspondingly as net asset value equals fair value minus finanical liability. Therefore, if the fair value of the asset equals its financial liability, the net fair value is zero.