FAIR VALUE MEASUREMENTS

Question 1

Fair Value

Answer 1

Price that would be received to sell an asset or paid to tf a liability in an orderly transaction btw market participants in the principal market at the measurement date under current market conditions

Question 2

Fair Value Terminology

Answer 2

1. Orderly Transaction
2. Market Participants
3. Principal Market
4. Most Advantageous Market
5. Highest and Best Use -
   a. Non financial assets
   b. Liabilities and Financial Assets

Question 3

Orderly Transaction

Answer 3

Exposed to the market for a period before the measurement date

Question 4

Market Participants

Answer 4

Buyers and Sellers who are independent knowledgeable about the asset or liability

Question 5

Principal Market

Answer 5

with greatest volume or level of activity for the asset or liability

Question 6

Most Advantageous Market

Answer 6

the market with the best price for the asset

Question 7

Fair Value Measurement Framework

Answer 7

1. Outlines the valuation techniques that can be used to measure FV
2. establishes a hierarchy of the inputs that can be used in these valuation techniques

Question 8

Valuation Technique

Answer 8

a. Market Approach - uses prices and other relevant information from market transactions involving identical to measure FV

b. Income Approach - converts future amounts

c. Cost Approach - uses current replacement cost to measure the FV of assets

Question 9

Hierarchy of inputs

Answer 9

Level 1 - Highest Priority - quoted prices
Level 2 - inputs other than quoted market prices that are directly or indirectly observable
Level 3 - Unobservable inputs