Fair value measurement Flashcards
Who are market participants?
Buyers and sellers that are independent and act in their best economic interests.
What are the 3 valuation techniques used to determine fair value?
- Market approach
- Income approach
- Cost approach.
How many levels of fair value exist and what are the inputs used in each level?
Level 1 = Quoted price in an active market for identical assets or liabilities
Level 2 = Quoted price for a similar asset or liability
Level 3 = Unobservable inputs (Projected cash flows, historical performance) on assumptions that a market participant would use
Per the expected credit loss model how is the impairment of a security is calculated?
- Compare the present value of the security against the carrying amount. If the carrying amount is greater than the present value than the assets is written down by subtracting the Fair value of the asset against the carrying amount. Note that the the fair value needs to lower than the carrying amount for it to happen.
The Journal entry will be
Dr. Expected credit loss (P&L impact)
Cr. investment security
The fair value for an asset or liability is measured as?
Fair value is the PRICE that would be RECEIVED TO SELL AN ASSET or PAID to TRANSFER a liability in an orderly transaction between market participants in the principal market at the measurement date under market conditions.
