Fair Value Measurements

Question 1

what are the valuation techniques used to measure FV of an asset or liability?

Answer 1

the valuation techniques are market approach, cost approach, and income approach.
- Market approach uses price and other market info of identical or comparable assets/liabilities to measure FV.
- Cost approach uses current replacement costs to determine FV.
- Income approach uses future cash flows or earnings are discounted to determine FV.

Question 2

what are the 3 valuation techniques?

Answer 2

• Market approach: uses prices or other relevant info from market transactions of identical or comparable assets/liabilities
• Income approach: coverts future amounts, includes cash flows or earnings to a single discounted amount to measure FV.
• Cost approach: uses current replacement cost to measure the FV assets

Question 3

what is level 1 inputs?

Answer 3

Quoted prices in active markets for identical assets/liabilities. Level 1 is the most reliable inputs.

Question 4

what is level 2 inputs?

Answer 4

inputs other than level 1 but directly or indirectly observable.

Question 5

what is level 3 inputs?

Answer 5

Unobservable. Level 3 should only be used when there are no observable inputs ( level 1 or 2)