Conceptual Framework & IFRS

Question 1

Historical Cost

Answer 1

Amount you paid for it (PP&E)

Question 2

Replacement Cost

Answer 2

What it would cost to replace an item (inventory)

Question 3

FMV (Fair Market Value)

Answer 3

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 4

NRV (Net Realizable Value)

Answer 4

Amount expected to be converted into (A/R)

Question 5

PV (Present Value)

Answer 5

Discounted cash flows due to the time value of money (Notes/Receivable, Bonds/Payable, Leases)

Question 6

Fair Value: Fair value option for reporting

Answer 6

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 at exit price
+An orderly transaction is a transaction that allows for normal marketing activities that are usual and customary (Not Forced transaction)
=Exit price (Not Entry price)

Question 7

Fair Value: Applying FV measurement approach

Answer 7

1) Identify ASS or LIAB
2) Determine principle or most advantageous market
3) Determine the valuation premise
4) Determine appropriate valuation technique
5) Levels - Obtain inputs for valuation
6) Calculate FV of asset

Question 8

Fair Value: Principle Market

Answer 8

Greatest Volume and level of activity occurs

Question 9

Fair Value: Most advantageous market

Answer 9

Maximizes price received for the asset or minimizes amount paid to transfer the liability

Question 10

Fair Value: Valuation premise

Answer 10

Assume the highest and best use premise to determine the fair value
+in-use - if maximizes value by using it with other assets as a group
+in exchange - if asset provides maximum value on a stand-alone basis

Question 11

Fair Value: Market approach

Answer 11

uses prices and relevant information from market transactions for identical or comparable ASS/LIAB

Question 12

Fair Value: Income approach

Answer 12

uses PV techniques to discount cash flows or earnings

Question 13

Fair Value: Cost approach

Answer 13

uses current replacement cost - change in method is considered a change in accounting estimate

Question 14

Fair Value: Hierarchy

Answer 14

must be used to prioritize the inputs to valuation techniques

Question 15

Fair Value: Hierarchy: Level 1

Answer 15

quoted prices from active markets

Question 16

Fair Value: Hierarchy: Level 2

Answer 16

direct/ indirect observable inputs

yield curves, bank prime rates, interest rates, credit risks, default rates on loans

Question 17

Fair Value: Hierarchy: Level 3

Answer 17

unobservable inputs if level 1 or 2 are not available

financial forecasts or expected cash flow estimates

Question 18

Fair Value Option Applies to

Answer 18

+ Availible-for-sale
+ Held-to-Maturity
+ Equity Method
+ Certain financial LIAB, firm commitments that involve financial instruments, written loan commitments, non-financial insurance contracts settled by 3rd-party, warranties for 3rd party, host financial instrument, ect.

Question 19

IASB Bases of measurement

Answer 19

+Historical cost
+Current cost
+Realizable value
+Present Value

Question 20

IASB Current cost

Answer 20

Amount to acquire currently

Question 21

IASB Realizable value

Answer 21

Amount to sell asset in orderly disposal

Question 22

IASB PV

Answer 22

discounted cash flows