Fair value measurement

Question 1

Fair value

Answer 1

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 2

Exit price to measure fair value is …

Answer 2

• NOT adjusted for transaction costs
• could be adjusted for transportation costs if location is a characteristic of the asset/liability being measured

Question 3

Principle market

Answer 3

market with the greatest volume and level of activity

Question 4

Most advantageous market

Answer 4

market that would maximize the amount received/paid after deducting transaction (and transportation) costs

Question 5

Characteristics market participants

Answer 5

• independent (of each other)
• knowledgeable (reasonable understanding about asset/liability)
• able and willing (to enter into a transaction)

Question 6

Market approach

Answer 6

based on market transactions involving identical or similar assets or liabilities

Question 7

Income approach

Answer 7

based on future amounts that are discounted to a single present amount (PV)

Question 8

Cost approach

Answer 8

based on the amount required to replace the service capacity of an asset

Question 9

observable inputs

Answer 9

are developed using market data, such as publicly available information

Question 10

unobservable inputs

Answer 10

those where market data is not available and are developed using the best information possible

Question 11

level 1 inputs

Answer 11

quoted prices in active market for identical assets or liabilities

Question 12

level 2 inputs

Answer 12

• quoted prices for similar assets or liabilities in active markets
• quoted prices for identical items in inactive markets
• inputs other than quoted prices that are observable for asset/liability
• inputs that are derived from or corroborated by observable market data
  (observable for full term of asset/liability)

Question 13

level 3 inputs

Answer 13

• cash-generating units
• trademarks
• accounts receivables
  etc

Question 14

highest and best use of a non-financial asset

Answer 14

use of a non-financial asset by market participants that would maximize the value of the asset or the group of assets/liabilities within which the asset would be used (perspective market participants)

Question 15

Potentially uses non-financial asset must be

Answer 15

• physically possible
• legally permissible
• financially feasible

Question 16

standalone valuation premise

Answer 16

market participants would obtain maximum benefit principally through using the asset on a stand-alone basis

Question 17

in combination valuation premise

Answer 17

market participants would obtain maximum benefit principally through using the asset in combination with other assets or liabilities as a group

Question 18

No quoted prices available

Answer 18

mostly for liabilities, measurement will depend on whether or not a corresponding asset is held by another entity

Question 19

Corresponding item held by another party as an asset (YES)

Answer 19

measure fair value form perspective of a market participant that holds the asset

Question 20

Corresponding item held by another party as an asset (NO)

Answer 20

measure fair value using a valuation technique from the perspective of a market participant that owes the liability (PV )