When should the principle versus most advantageous market be used in determining fair value?

The principle versus most advantageous market decision is fundamental in assessing fair value within business valuation. The principle market is defined as the market in which the asset or liability could most frequently be sold for the highest price. When assessing fair value, the most advantageous market is the one that would provide the best price for the asset, but it may not always be the market in which the asset is most frequently traded.

Selecting the principle market unless it is absent is crucial because it typically leads to a more reliable and stable valuation, reflecting the most relevant prevailing conditions for that asset or liability. When the principle market is available, it provides a clear benchmark for defining fair value based on real transaction data.

Utilizing the most advantageous market only when necessary may overlook significant market efficiencies present in the principle market. In contrast, alternating between both markets could lead to inconsistencies and complications without a clear, justifiable rationale.

Thus, choosing the principle market as a default unless it is absent ensures that the valuation remains grounded in widely recognized and applicable market conditions, making it a sound approach for determining fair value in business valuations.