Establishing Fair Value of Objects in Sales and Barter Transactions: An Investment Analysis Perspective on the Fair Value of Assets and Liabilities Using an Approach Based on Decisions Theory
by Valeriy V. Glasyuk, Ph.D, Professor Emeritus.
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www.galasyuk.comeasuring Access to Determine the Effect on Market Value
A project funded by The Appraisers Research Foundation
This Research Paper reveals the arcane fundamentals of sale and transfer transactions and processes underlying the formation of value of objects exchanged in such transactions, and provides opportunities for transforming trade from an art into a skill.
The author, relying on the perspective from G theory as elaborated by him and the associated concept of the four basic types of economic decisions proposes a unique pioneering approach to the study of sales transactions and asset and liability transfers.
This Research Paper provides answers to the following questions:
- how to determine the amounts of economic interests to be derived by the transacting parties in sales transactions and transfers;
- how to identify a strong or weak party in sales transactions and transfers;
- how the ultimate amount of economic benefits to each of the parties in these transactions is negotiated;
- how to calculate amounts of economic potential implicit in sales transactions;
- how to determine whether or not a sales transaction is feasible;
- how to estimate the economic benefits to each of the parties in sale or transfer transactions;
- how to determine whether or not a transaction is fair; and
- how to estimate the magnitude of fairness and/or imbalance incidental to sales transactions and transfers?
We present a taxonomy of basic intuitive algorithms underlying the formation of fair value for objects exchangeable in sales and transfer transactions.
The elegance of the proposed approach to the study of sales and transfer transactions is in facilitating the determination of the amounts of exchange value in any sale or transfer transactions by means of four types of economic decisions and proportions that correspond to the values set by these decisions.
Of particular practical relevance to the theoretical postulates presented in the Paper is the fact that three out of the four basic types of economic decisions described by the author, in fact, have already found their application in the context of the International Financial Reporting Standards (IAS 36 “Impairment of Assets”).
The international professional community has paid increasing attention to the issue of fair value. Thus, the 2011 edition of the International Valuations Standards (IVS 2011) that became effective as of January 1st, 2012 sets a precedent for the use of “fair value” in valuation contexts, along the same lines is the new IFRS 13 “Fair Value Measurement” which becomes effective as of January 1st, 2013.