FAIR VALUE Definition

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FAIR VALUE, under GAAP, is the amount at which an asset could be bought or sold in a current transaction between willing parties, other than in liquidation. On the other side of the balance sheet, the fair value of a liability is the amount at which that liability could be incurred or settled in a current transaction between willing parties, other than in liquidation.

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UP-FRONT PAYMENT is anything of value, usually money, delivered at the time a contract is signed, e.g. down payment, licensing fees, or closing costs.

SHARE APPLICATION MONEY is that money received by a company during an IPO. Payments received for a subscription of stock is normally received over the IPO life. For example: Widgets Limited has been registered with an authorized capital of $2,00,000 divided into 2,000 shares of $100 each of which, 1,000 shares were offered for public subscription at a premium of $5 per share, payable as:

  • on application $10
  • on allotment $25 (including premium)
  • on first call $40
  • on final call $30

For a total of $105/share

The amounts received would be carried as a current liability until such time as the stock is issued, then it would be considered as part of equity.

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