Chapter 10 Section 1: Fair Value Measurement

Question 1

Define fair value

Answer 1

The exit price

Do not include transaction costs

Question 2

What market do you use to determine fair value?

Answer 2

If there is one, use the principal market
If not, use the most advantageous market. This is the FV in the market where quoted price-transaction costs gives the highest value. Don’t use that value, though. Use the price.

Question 3

What are the three approaches to fair value measurement?

Answer 3

Market - use prices and information from the market
Income - PV
Cost - current replacement cost

Question 4

What are the hierarchy of inputs?

Answer 4

1. identical assets or liabilities in active markets
2. similar in active market or identical in inactive
3. unobservable, like discounted cash flows