10. Fair Value Framework & Definititions

Question 1

Define “fair value” (for accounting purposes).

Answer 1

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

Question 2

For purposes of the fair value definition, what
are the assumed characteristics of market
participants?

Answer 2

Buyers and sellers that are:
Independent of the reporting entity.
Acting in their economic best interest.
Knowledgeable of the asset or liability and the transaction
involved.
Able and willing, but not compelled, to transact for the
asset or liability.

Question 3

What is the major purposes of the fair value

framework?

Answer 3

To provide a framework for the use of fair value in generally
accepted accounting principles (GAAP) so as to:
Achieve increased consistency and comparability in fair
value measurements; and
Expand disclosure when fair value measurements are used.