F2 M4 -Fair Value Measurement

Question 1

US GAAP & IFRS - same definition except FV

Answer 1

Except

1. Share base compensation
2. Measurement based on vendor specific evidence of FV
3. FV used for lease classification

Question 2

Fair value defined

Answer 2

= Exit price
Price received to sell asset or paid to transfer liability.

• FV measured for specific asset or lia
• Market based approach not entity based
• in principle market or most advantageous if no principle market
• exit price
• consider all assumption to maket
• Fv does not include transaction cost but include transportation cost
• FV of non financial asset is next best use
• FV of liability-obligation will not fullfilled
• FV of own equity-from the investor

Question 3

Orderly transaction

Answer 3

is one which the assets and lia is exposed in the market. not a forced transction.

Question 4

Market participant

Answer 4

Independent not related parties

Question 5

Principal Market

Answer 5

with greatest volume, like stock exchange

Question 6

Most advantageous market

Answer 6

if no principal market

Best price -transaction cost
A-54-3=51
B- 56-8=48
Best market is A
Fv=54. Transaction cost is not consider determining FV but consider while determining advan market

Question 7

Highest and best use
Non financial asset
Liabilities & Fin Assett

Answer 7

Non fin asset-Highest and best use

Lia & FIn assset-Highest & best is not relevant

Question 8

Valuation technique - FV

Answer 8

MIC-
Market-exchange price of asset /lia-identical or similar asset
Income-PVFCF
Cost-current replacement cost

Question 9

Hierarchy of input-FV measurement

Answer 9

Level 1 input- Active market -identical asset-quoted market price
Level 2-Quoted MP for similar asset, identical asset -non active market,
Level 3 - unobservable inputs future cash flow, based on assumption.

Question 10

FV disclosure

Answer 10

1. Valuation tech, inputs and assumption -Level 3
2. uncertainty of FV on reporting date
3. changes in FV affect entity’s performance and cash flow

additional disclosure

• PVFCF estimation
• discussion of level 3 sensitivity
• info about non fin asset -best and highest use
• Hierarchy of items not in FS but disclosed in notes

Question 11

Exception to FV mesurement

Answer 11

• Not practicable
• can not reasonably determined
• can not be measured sufficient reliability