A3 - Contraints & PV

Question 1

Contraints/PV - PV of FCF is used to estimate what?

Answer 1

Measurement - Estimates Fair Value

Question 2

Contraints/PV - When using cash flows to estimate fair value, what are the 2 ways to incorporate risk?

Answer 2

1. Discounted cash flows

2. Expected cash flows

Question 3

Contraints/PV - What is Discounted Cash Flows?

Answer 3

Disc Cash Flows - Single cash flow value is discounted using the risk adj. rate.

Question 4

Contraints/PV - What is Expected Cash Flows?

Answer 4

Expected Cash Flows - Probability weighted cash flows is discounted using the risk-free rate.

Question 5

Contraints/PV - What does the concept statement on cash flows and fair value acctg measurements govern?

Answer 5

Governs how to measure items at Fair Value NOT when to measure items at Fair Value.

Question 6

Contraints/PV - What is the cost constraint?

Answer 6

Limits recognition and disclosure if the cost of providing the information exceeds its benefit.

Question 7

Contraints/PV - When is PV of FCF used to estimate Fair Value?

Answer 7

If the fair value of an asset or liability is available, there is no need to use present-value measurement.