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Question 1

Which of the following is an example of a transaction involving a market participant?

A company purchases a commercial rental property from a company that is owned by the same shareholders.

A company sells land to a local government to satisfy an outstanding tax lien.

A company purchases real estate zoned for recreational use.

A judge orders a company to sell machinery during a bankruptcy proceeding.

Answer 1

A company purchases real estate zoned for recreational use.

Market participants refer to buyers and sellers in the principal market for an asset or liability. Market participants must be independent from the buyer/seller (e.g., companies owned by the same shareholders are not market participants). Market participants must be willing participants and must not be forced into the transaction (e.g., satisfying a lean or mandated by a judge).

Therefore, the only option that meets this definition is a company purchasing real estate. No information disqualifies the company from being recognized as a market participant.

Question 2

Market Participants

Answer 2

Market participants are buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:

• They are independent of each other; that is, they are not related parties, although the price in a related-party transaction may be used as an input to a fair value measurement if the reporting entity has evidence that the transaction was entered into at market terms.
• They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary.
• They are able to enter into a transaction for the asset or liability.
• They are willing to enter into a transaction for the asset or liability; that is, they are motivated but not forced or otherwise compelled to do so.
  FASB ASC Glossary

Question 3

2350.08

Answer 3

Market Participants

The standards define market participants as buyers and sellers in the principal (or most advantageous) market for the asset or liability that are:

a. independent of the reporting entity; that is, they are not related parties.
b. knowledgeable, having a reasonable understanding about the asset or liability and the transaction based on all available information, including information that might be obtained through due diligence efforts that are usual and customary.
c. able to transact for the asset or liability.
d. willing to transact for the asset or liability; that is, they are motivated but not forced or otherwise compelled to do so.