Fair Value Framework

Question 1

FV is used

Answer 1

Increase consistency and comparability
To measure and report FS as required of permitted by GAAP ASCs. ASC80 provies a framework to measure FV to achieve consistency and comparability do not apply to inv pricing, lgl svc
U.S GAAP and IFRS FV has the same meaning
determination for FV may be for Stand alone Asst or Lib or a group of ass or liab

Question 2

Objectives of FV

Answer 2

1 Definition of FV for GAAP purposes
2 measuring FV for Acct purposes
3 Disclosure of FV when it is used

Question 3

Definition of FV

Answer 3

FV is a Mkt based measurement
The price that would be recv to sell and asst of paid a liab betw mkt participats at the measurement date
-is a base measurement not an entity-specific
-measmt would occur under current mkt condition not in a force liquidation
-stablishes basis of estimating the price
-occurs in the principal market or in the most advantageous mkt
-transc cost will not be deducted
-

Question 4

Characteristics of market participants

Answer 4

1 Independent of the reporting entity

2. acting in their economic best interest
3. Knowledgeable of the asset or liability and the transaction involved
4. able and willing but not compelled to transact for the asset or liab

Question 5

major purpose of FV framework

Answer 5

To provide a framework for the use of FV in GAAP so as to:

• Achieve increased consistency and comparability in FV measurements
• Expand disclosure when FV measurements are used

Question 6

Application of Assets

Answer 6

the determinatin oa a nonfiancial asset assume the highest and best use of the asset by mkt participants
Hgt and best does not apply to measuring and must take in account what is physically, llegally and financially feasible
-the highest best use of an asset may be
In use-maximun to mkt participants through its use in combination w/other assets as a group or in exchange

Question 7

application of Liabil

Answer 7

1-Assumes that the liab is transf to a market participant
at a measurement date and is not cancel or settled
2should conside the effects of credit risk, a 3rd party credi should not be considered
3. adj on restrictions that prevents the tranf should not be made in measuring FV
4. the liab should be measeured from the perspective of the party that holds the item as an asset

Question 8

What price is FV based on

Answer 8

Exit price

Question 9

Application ot shareholders equity

Answer 9

1. apply to instruments classified in shareholders’ equity a (e.g equity inters issued as consideration in in a buss combination)
2. transfed at a measmt date and measure from the perspective of a mrkt participant that holds the instrument as an asset
   3 dj on restrictions that prevents the tranf should not be made in measuring FV
3. when identical sh instrument is not available and is held by another party as an asset should be measure by the perspective party that holds the item as an asset

Question 10

application of net financial assets or liabilities

Answer 10

1- measure separately is permitted when a reporting entity manages risk w/a porfolio of fInanc Instrumen on a net exposure basis intsead of gross exposure basis
2.- w/net exposure basis may measure FV at:
a-the price that would be receive to nel a Net Asset position for a particular risk
b.- the price that would be paid to transfer a Net Liability position a particular risk

Question 11

Applicability

Answer 11

ASC 820 applies to items that use FV either required or as permitted by GAAP.
EXECPT:EXCLUSIONS
a.-Acct Princ that address share-based pymt transt
b.-ASCs tthat require measmt similar to FV but not intended to meas FV includes”
1-Acct princpls that permits measrt determined using vendor-specific objective evidence of Fair value
2-Acct princpl that address FV measmt for purposes of Inventory pricing
c. Acct Princl FV of lease Classification or measurement
d.ASCs that permit paracticability execptions fto FV Msmt
e. PERVASIVE APPLICABILITY, Other than execptions, ESCs 820 must be follow when FV msmt is use

Question 12

Pactical Expedient exception

Answer 12

ASU 820 allows to use a Practical Expedient exception to measure FV if an investment that does not have a quoted mkt price bur reports a NAV(net asset value) per share, it is called “Alternative Investments” (e.g hedge funds, private equity funds, real state funds, venture capital funds, common.collective funds and offshore funds)

Question 13

Criteria to use NAV as practical expedient, on Alternative Investments(AInvt)

Answer 13

1. -does not have a readily determinable FV
2. -meet the criteria stipulated by ASC90-10-15-2, or does not meet the criteria to an invst company but follows industry.

Question 14

Classification in the Fair Value Hierarchy

Answer 14

1-AInvt are categorized in FV hierarchy but are separatel reporte in the footnotes w/disclosure that must rec to the amt reported on the bal sheet
2.- Co must disclose sufficient information about the terms and condition in which the co can redeem its investm

Question 15

other Instances that allow the use of practical expedien

Answer 15

valuation of benefit plans

private co. measmt of share based pymt

Question 16

Principal market

Answer 16

The one w/ the greatest volume and level of activity

Question 17

Most Advantageous market

Answer 17

reporting entity could sell the Asst a a price that maximized or minimize the amt that would be recv for the asset or liablt (Highest or lowest selling price)
Mkt base exit price would not be adj for transaction cost (cost executing the transaction,
but will be adj for transp to get the asset the asst to most advantageous mkt