01.04- Fair Value Flashcards
What are the six steps for Fair Value measurement?
1) Identify the asset or liability to be measured
2) Determine the principal or most advantageous market
3) Determine the valuation premise
4) Determine the appropriate valuation technique
5) Obtain inputs for valuation
6) Calculate the fair value of the asset
What four items are required to be recognized at fair value?
- Investments in marketable debt that are classified as TRADING SECURITIES or AVAILABLE FOR SALE
- Assets and liabilities when first recognized (but not in future periods)
- Impairment Losses
- Derivatives
Where are UNREALIZED GAINS OR LOSSES on TRADING SECURITIES recognized?
- Statement of Income
Where are UNREALIZED GAINS OR LOSSES on AVAILABLE FOR SALE recognized?
- Other Comprehensive Income
When is an IMPAIRMENT OF A RECEIVABLE recognized?
- When it is expected that some or all payment will not be received, or not be received on schedule.
- The fair value of the impairment would be the expected amount to be received.
What other two items are tested annually for IMPAIRMENT?
- Goodwill
- Intangibles
When are DEPRECIABLE ASSETS and AMORTIZABLE INTANIGIBLES evaluated for an adjustment to their FAIR VALUE?
When there is an indication that they have been impaired
Which DERIVATIVES are reported at FAIR VALUE?
ALL OF THEM
Where are UNREALIZED GAINS AND LOSSES reported for DERIVATIVES? What is the one exception to this rule? Where is that exception reported?
- Income
- Exception: Derivatives that are designed as cash flow hedges
- Reported in Other Comprehensive Income
Which four items are NEVER reported at FAIR VALUE?
- Pension plans and other retirement benefits
- Leases
- Financial instruments that are components of equity
- Share based payments and stock options
What three things are considered FINANCIAL INSTRUMENTS?
- Cash
- Ownership Interest
- A contract that imposes an obligation to receive another financial instrument
Which two examples of FINANCIAL ASSETS AND LIABILITIES would qualify for the FAIR VALUE ELECTION?
- Most investments
- Firm commitments involving financial instruments
Where would UNREALIZED GAINS OR LOSSES for AVAILABLE FOR SALE SECURITIES be reported at FAIR VALUE?
- Income Statement
Where would UNREALIZED GAINS OR LOSSES for HELD TO MATURITY SECURITIES be reported at FAIR VALUE?
- Income
Where would UNREALIZED GAINS OR LOSSES for INVESTMENTS accounted for under the EQUITY METHOD be reported at FAIR VALUE?
- Income
Once an option is elected, where FAIR VALUE or otherwise, can it be changed?
no!
If you elect to do FAIR VALUE for a financial instrument, do you need to do fair value for all other similar financial instruments that you own?
no!
What is FAIR VALUE for CASH?
Face amount
What is FAIR VALUE for INVESTMENTS IN MARKETABLE SECURITIES?
Market value
What is FAIR VALUE for ACCOUNTS RECEIVABLE?
Net realizable value
What is FAIR VALUE for INVENTORY?
Replacement cost
If FAIR VALUE isn’t defined by literature, what should be used?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurable date.
MARKET PARTICIPANTS are what four things?
- Independent of the entity
- Reasonably knowledgeable about the asset or liability
- In a position to acquire the asset or assume the liability
- Voluntarily willing to acquire the asset or assume the liability
What is the EXIT PRICE?
The price to sell the asset or paid to transfer the liability
What is the ENTRY PRICE?
The price paid to acquire the asset or received to assume the liability.
What type of PRICE is the focus of the EXCHANGE PRICE NOTION?
Exit price
