Fair Value Measurement

Question 1

Objectives of AASB 13

Answer 1

• Define the value
• Establish a framework for measuring fair value
• require disclosure about fair value measurement

Question 2

Fair value

Answer 2

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

Question 3

Exit price

Answer 3

price that would be received to sell an asset or paid to transfer a liability

Question 4

Orderly transaction

Answer 4

• normal market conditions

- transaction assumes exposure to the market for a period

Question 5

Market participants

Answer 5

• must be independent
• must be knowledgeable about the asset or liability
• must have the ability to enter into the transaction
• must not be forced or compelled

Question 6

4 steps

Answer 6

1. Determine the asset or liability that is to be measured
2. Determine the valuation premise that is most appropriate
3. Determine the principal or most advantageous market
4. Determine the appropriate valuation technique

Question 7

3 Valuation techniques

Answer 7

• Market Approach
• Cost Approach
• Income Approach

Question 8

Fair Value Hierarchy

Answer 8

Level 1: quoted prices in active market quotes
Level 2: Similar assets in active markets or quotes in inactive markets
Level 3: unobservable inputs for the asset or liability