FAIR VALUE MEASUREMNT

Question 1

Level 2 Observable inputs for determining the Fair value of an asset or liability.

Answer 1

1. Quoted prices for identical assets and liabilities in the markets that are active.
2. Quoted prices for similar assets and liabilities in not active markets.
3. Interest rates that are observable at commonly quoted intervals.

Question 2

Giaconda, Inc. acquires an asset for which it will measure the fair value by discounting future cash flows of the asset. Which of the following terms best describes this fair value measurement approach?

1 Market
2 income
3 cost
4 Observable Input

Answer 2

Valuing an asset by measuring the cash flows produced by the asset would be the income approach to measuring fair value.

There are 3 valuation approaches to measure fair value:

1 Market approach: use prices from market transactions, such as the level 1, 2, 3 heirarchy
2 Cost approach: basically the current replacement cost
3.Income approach: Converting future amounts into one current amount, such as discounted future cash flows

Question 3

To determine fv of an asset without a principal market we consider the most advantageous market. Determine the fv of the asset
Mkt A - QP 1000 - trans cost 75 = 925
Mkt B - QP 1050 - trans cost 150 = 900

Answer 3

Most advantageous mkt 925 so FV Of NA Is 1000