Fair Value Measurements (F2:M4) Flashcards
what is fair value?
price that would be received to SELL an asset or paid to TRANSFER a lability in the principal (or most advantageous) market
fair value is a ___ - ___ measurement
market-based
does fair value include transaction costs? How about transportation costs?
does not include transaction costs. may include transportation costs
fair value of a nonfinancial asset assumes the ___ and ___ use of the asset.
highest; best
what is the principal market? What happens when there is no principal market?
market with the greatest volume or level of activity. If there is a principal market, the price in that market will be the fair value even if there is a more advantageous price in a different market
price in the most advantageous market is used
how do you determine which market is most advantageous? (formula)
quoted price - transaction costs = net
use highest “net” amount to select the attributable quoted price as the fair value
what are the 3 approaches that can be used to determine fair value?
market- uses market information (A or L)
income- converts future amounts to a single discounted amount (A or L)
cost- uses current replacement cost (A)
level 1 inputs
Best! quoted prices in active markets for identical assets or liabilities
level 2 inputs
Good, but not great
“similar; active market”
“identical; not active market”
level 3 inputs
last resort
unobservable inputs for the A or L
only used when there are no observable inputs or when undue cost/effort required to obtain observable inputs
