01.04- Fair Value part 2 Flashcards
What are non-financial assets measured at?
“Highest and best use”
In what two ways can non-financial assets be measured for “highest and best use”?
- In exchange
- In use
What is the PRINCIPAL MARKET?
The market where an asset or liability would most frequently be traded.
Are the costs of a transaction included in the FAIR VALUE cost?
no!
…unless it is the cost to transfer a product to the Principal market
What are the three VALUATION TECHNIQUES to measuring an item at fair value?
- Market approach
- Income approach
- Cost approach
What is the MARKET APPROACH?
Using information generated by market transactions that involve IDENTICAL or COMPARABLE items
What is the INCOME APPROACH?
Analyzing future amounts in the form of revenues, cost, savings, earnings, or some other item.
What is the COST APPROACH?
Measuring the cost that would be incurred to replace the benefit derived from an asset.
What are the three LEVELS OF INPUTS that might be applied to FAIR VALUE?
- Level 1: Observable data from actual transactions
- Level 2: Observable data from a non-active market or from similar items
- Level 3: Based on judgement.
What provides users of financial statements with better information about fair value usage?
DISCLOSURES
What four things did ASC 820 do to increase CONSISTENCY and COMPARABILITIY in FAIR VALUE MEASUREMENTS?
- Identified which items are at fair value and where they are reported
- The level of inputs (I, II, or III) were applied
- Valuation technique applied
- The disposition of changes in fair value (income or comprehensive income)
What is RISK?
The probability that cash will actually be paid or received
What is TIMING?
The period when payments are expected to be received
What is the TRADITIONAL APPROACH to CASH FLOWS?
Use the most likely cash flow amount.
What is the EXPECTED APPROACH to CASH FLOWS?
Use the weighted average of different possibilities.
