Bid and ask prices

Learning objectives

• Determine the price within the bid-ask spread that is most representative of fair value.L3

Normative references

• IFRS 13 §70When a bid price and an ask price exist, the price used is the one within the spread that is most representative of fair value in the circumstances; the use of bid prices (assets) or ask prices (liabilities) is permitted but not required.
• IFRS 13 §71The use of mid-market pricing or another pricing convention as a practical expedient is permitted but not required.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• An instrument traded on a dealer market shows a bid price of 51.80 and an ask price of 52.40. Which price does the standard use for fair value?L3
• A share is quoted by dealers with an ask price of {ask_price} and a bid price of {bid_price}. Compute the bid-ask spread per share, then the mid-market price the entity would use if it applies that market convention (permitted by the standard, not required).L3
• A valuer comments on their treatment of a quoted instrument with a bid price and an ask price. Which of their statements is wrong?L3