An active market is defined in Appendix A of AASB 13/IFRS 13 as a market:
Group of answer choices
A.in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
B. of money held and assets to be received in fixed or determinable amounts of money.
C. with an identifiable non-monetary assets without physical substance.
D. with the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction.
The correct answer and explanation is:
The correct answer is A. in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Explanation:
AASB 13/IFRS 13 defines an active market as one where transactions for a particular asset or liability occur with sufficient frequency and volume to allow for the continuous availability of reliable pricing information. An active market ensures that the prices obtained from these transactions represent a reliable measure of fair value, because the market is liquid and frequently transacted.
The reason for considering frequency and volume is that they reflect how often assets are bought and sold and how many trades occur. This leads to more stable and consistent price information, which is crucial for fair value measurement. These markets are generally easy to access and allow for rapid transactions, often giving immediate price quotes based on recent trades.
For example, the stock market is often used as an example of an active market. Stocks of major companies like Apple or Tesla are traded frequently and in large volumes, making the prices derived from these markets very reliable. The fair value of these assets can be readily determined by looking at the current market price because of the high frequency of transactions and volume.
On the other hand, markets with fewer transactions or less frequent trading might not meet the criteria of an active market because the prices could be less reliable due to a lack of consistent transaction data.
Other choices are incorrect:
- B refers to money markets, which are related to financial assets, not the market characteristics defined in AASB 13/IFRS 13.
- C refers to intangible assets, which are not relevant to the definition of an active market.
- D refers to acquisition costs, which do not align with the concept of an active market defined by frequency and volume of transactions.
Therefore, option A is the correct choice because it aligns directly with the definition of an active market in AASB 13/IFRS 13.