fair value
Fair value is the honest price two willing people would agree on for something today, not what it cost years ago or what its owner wishes it was worth.
In plain English
"But that land cost me ₦2 million in 2015, why are you telling me it is worth ₦2 million today?" Uncle Femi asked his accountant, genuinely offended.
"Because nobody is buying land in Epe at 2015 prices anymore, sir. Land near that road now goes for ₦9 million. That is its fair value, what a real buyer would actually pay you now."
This is the whole idea behind fair value. It is not what you paid, it is not what you feel it deserves, it is what a willing buyer and a willing seller, both sensible and under no pressure, would agree on today.
Companies use this a lot. If a Lagos manufacturing firm bought machinery for ₦50 million ten years ago, that machine's fair value now depends on its condition, how much similar machines sell for, and whether newer, better versions exist. It could be worth far less, or in rare cases, more.
Someone in London sending shares or property valuations back home in Nigeria runs into this too. A flat bought in 2018 for £150,000 might have a fair value of £190,000 today, based on what similar flats nearby are actually selling for, not sentiment or hope.
Fair value matters because it keeps financial statements honest. It stops a company from sitting comfortably on old, outdated numbers when the real world has clearly moved on.
A Lagos company bought office equipment for ₦3 million in 2019. By 2024, similar used equipment sells for ₦1.2 million. The fair value on the books is adjusted down to ₦1.2 million, reflecting what it would truly fetch if sold today, not what was originally paid.
Questions people ask
Is fair value the same as market value?
They are close cousins. Market value is what something sells for on an active market right now. Fair value is a broader estimate used even when there is no active market, based on what a reasonable buyer and seller would agree on.
Why does fair value change so often?
Because the things that affect it, demand, condition, competition, and the wider economy, keep shifting. An asset's fair value today can differ from its fair value six months ago simply because circumstances changed.
Can fair value be higher than what something originally cost?
Yes. Property, shares, and even rare equipment can appreciate. If demand rises or the asset becomes scarce, its fair value can climb well above the original purchase price.
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