F2M3 Flashcards
US GAAP has ____ the definition of fair value
Standardized
What are the exception to standarization of fair value
- share-based compensation
- Vendor-Specific objective evidence of FV
- Lease classification or measurement
Fair value
the price that would be received to SELL an asset or PAY a liability
Orderly transaction in the principle (or most advantageous market) at the measurement date under current market conditions
Exit Price
Attributes of Fair value
market-based measure
principle market or most advantageous market
exit price
reflect all assumptions that market participatnt would use in pricing
does not include transaction cost
Non financial asset assumes highest and best use
Orderly transaction
cannot be forced transaction
versus fire sale
market participants
buyers and sellers who are independent
Not related parties
principle market
market with the greatest VOLUME or LEVEL of activity
Most advantageous market
if there is no principle market, the market with the best price for the asset after considering transaction costs
Not included in calculation
Highest and best use
market participants ability to generate economic benefits by using the asset in its highest and best use or selling to someone who will
Valuation techniques measuring fair value
MIC
Market approach
Income Approach
Cost Approach
Market Approach
uses prices and other relevant information from market transactions
i.e. stock exchanges
income approach
PVFCF
converts future amounts to a simple discount amoun to measure fair value
Cost approach
uses REPLACEMENT costs
Hierarchy of inputs
3 levels
should use level 1 first
maximize use of observable inputs (level 1 & 2)
Level 1 inputs (hierarchy of inputs)
active markets for identical assets
has access to it on the measurement date
quoted prices avaliable
MOST RELIABLE
