What is Exit Price in Fair Value Accounting?

Exit price is the price that a seller would receive in exchange for the sale of an asset or would pay to transfer a liability. This price should be obtained in an orderly transaction between market participants. A exit price is a bid price, since the seller is setting an offer price for prospective buyers. This is different from the ask price that a buyer would state in order to acquire an asset. When there is a robust market, with many buyers and sellers, the difference between the offer price and ask price will likely converge.

Examples of Exit Price in Fair Value Accounting

Here are several examples of situations in which an exit price is used in fair value accounting:

Sale of investment securities. A company holds publicly traded stock as an investment and reports it at fair value on its balance sheet. The exit price is determined by the stock's quoted market price on an active exchange, such as the New York Stock Exchange (NYSE), at the measurement date. If the stock is priced at $50 per share, the company would use this as the exit price in fair value reporting, as it represents the amount it would receive if it sold the asset in the open market.
Valuation of real estate for financial reporting. A real estate investment trust (REIT) owns a commercial property and needs to report its fair value at year-end. The exit price is based on recent sales of similar properties in the market, adjusted for differences such as location and condition. If comparable properties recently sold for $5 million, the REIT would use this amount as the exit price, representing the price it could receive if it sold the building under current market conditions.
Transfer of a corporate liability. A company has a legal obligation to clean up an environmental site and needs to measure the liability at fair value. The exit price is based on the amount the company would pay to transfer this obligation to a third party, such as a specialized environmental cleanup firm. If the market price for outsourcing the cleanup is $2 million, this would be the exit price reported in the company’s financial statements.

What is Exit Price in Investing?

Exit price is the price at which the owner of an asset sells it. This amount is net of any commissions paid on the sale. For example, George purchases shares in Alpha Corporation for $25 and later sells them for $30, paying a $1 brokerage commission on each share sold. The exit price is $29, and his profit on the transaction is $4 per share.