What is the principle used to determine the fair value of a financial instrument according to IFRS 9?

The principle used to determine the fair value of a financial instrument according to IFRS 9 emphasizes the concept of the "highest and best use" of the asset or liability. This approach aligns with the market's perspective, focusing on what the asset or liability would fetch in an orderly transaction between market participants at the measurement date.

The definition of fair value under IFRS 9 requires considering the use that is physically possible, legally permissible, and financially feasible. The "highest and best use" recognizes that fair value is not solely about the current use but rather how the asset could be optimally utilized to achieve the maximum potential value. This principle is pivotal in valuing financial instruments accurately, as it factors in the potential value enhancement that may arise from market conditions.

In contrast, the other options do not capture the necessary market-oriented perspective for fair value measurement as defined under IFRS 9. The market share of the asset/liability does not relate directly to its fair value, and the cost of acquisition may diverge significantly from its current value in the market. Similarly, relying on an investment return rate fails to encompass the holistic view of market conditions and potential uses that the highest and best use assessment provides.

Understanding this principle is crucial for financial reporting and