Why Aren’t All Investments Measured at Fair Value? | If Fair Value Is Best, Why not for Everything?

So, let’s take a look at how we handle investments. If you’re dealing with equity investments and your company is Ind AS compliant, you’re measuring those at fair value—whether through P&L (FVTPL) or OCI (FVOCI). Essentially, you are recording profits in your books, regardless of which specific category they fall into.
However, this isn't the rule for every type of investment. For example, if you are holding debt investments for the long term, you don't use fair value; you record them at amortized cost instead.
There’s a major ongoing debate about this: why not just measure everything at fair value, or conversely, why not use the conservatism concept for everything? The reality is that measuring everything at fair value could be quite dangerous because it would result in a very strange Profit and Loss statement. It would look like you have nothing but endless profit, which might not reflect the actual liquidity of the business.
I was recently watching an interview with Ray Dalio and one of the Kamath brothers where Dalio mentioned that while market prices are very high and people have a lot of paper wealth, the real question is whether they actually have "money". You have to consider whether you can actually sell those assets, convert them into cash, and use that to pay off your liabilities.
On the other hand, being overly conservative is also an issue because if you only record losses, you'll never see profit anywhere. We need to be somewhere in the middle, and that is exactly what the new accounting systems and the development of Ind AS are pointing toward.
To put it simply, reporting everything at fair value is like counting the value of your house every time the market fluctuates; it might make you look rich on paper, but it doesn't mean you have the cash in your pocket to buy groceries today.
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Fair value balance usually refers to the value of an asset or liability shown on a balance sheet when it is measured at fair value rather than at historical cost.
What “fair value” means
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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