Fair Value Measurement Flashcards
What is the definition of fair value?
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 current market conditions
What type of measure is fair value?
Market-based
What type of market is fair value measured in?
Principal market
What type of price is fair value?
Exit price
Does fair value include transaction costs?
No
Can an orderly transaction be a forced transaction?
No
What is the significance of a principal market?
Market with the greatest volume or level of activity
What is the significance of a most advantageous market?
Market with the best price for the asset or liability, after considering transaction costs
What are the 3 valuation techniques?
Market, income, and cost approach
What approach uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities to measure fair value?
Market Approach
What approach converts future amounts, including cash flows or earnings, to a single discounted amount to measure fair value?
Income approach
What approach uses current replacement cost to measure the fair value of assets?
Cost Approach
Which input involves quoted prices in active markets for identical assets or liabilities on measurement date?
Level 1 Inputs
Which input involves inputs other than quoted market prices that are directly or indirectly observable for the asset or liability?
Level 2 Inputs
Level 2 inputs include?
Quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets in markets that are not active
