What Is Fair value?
In finance, fair value is an estimate of the intrinsic value of an asset or liability, based on the most recent market data or other relevant information. The concept of fair value is used to measure the value of an asset or liability that is not traded in an active market, such as in accounting and financial reporting. It’s the estimated amount for which an asset or liability should exchange on the measurement date between a willing buyer and a willing seller in an arm’s-length transaction. It’s used for financial reporting and taxes, among other purposes. The calculation can be complex, as it often involves estimates and assumptions about future events, such as cash flow projections, volatility, risk, and other factors.
For example, Digital Currency Group took over the defaulted Three Arrows Capital loan of $1.1B from its subsdiary Genesis at its face value even though it is unlikely the money will ever be recovered. The fair value of this loan would have been much less.
See also Face value.