Fair Value

Question 1

Fair Value (exit price)

Answer 1

The fair value is the price to sell an asset or transfer a liability in an orderly transaction.

Fair value includes transportation costs, but not transaction costs.

The price in the principal market for an asset or liability will be the FV

Measurement.

If not, then use the most advantageous market.

Question 2

Valuation techniques for fair value

Answer 2

Market approach- prices from identical items

Income Approach- PV (discounted cash flows)

Cost approach- Replacement cost

Question 3

Hieracy of inputs

Answer 3

Level 1 inputs- quoted prices in active markets for identical assets, liabilities.

Level 2 inputs- similar quoted prices for assets or liabilities.

Level 3 inputs- reporting entities (management’s assumption.

Level 1 is most reliable, Level 3 is least

Level of hierarchy of FV measurement is lowest level