Fair Value Measurment

Question 1

What is Fair Value ?

Answer 1

Both US GAAP And IFRS agreed for mostly common definition for fair value its an exit price , the transaction must be orderly non of the purchaser or seller ar obligated of forced and not related parties

Question 2

How to determine fair value for PP&E ?

Answer 2

Highest and best Rule is applied , What is the most possible chance to appreciate the value of the underlying asset , all costs to be considered., Highest and best use rule do not apply for financial assets because most of the time they have no alternative

Question 3

How to determine fair value ?

Answer 3

MIC

Market Approach:

Principal Market : is the Market with highest activity transaction cost is not included , transportation costs is considered if it is material

Most advantageous market : Is the Market with highest Price for the stock after deducting transaction cost only to determine the advantageous Market but not to be included in fair value calculation.

Income Approach:
PV of expected cash-flow
Cost Approach: the amortized price of acquiring the asset.

Question 4

What are the inputs for determining fair value ?

Answer 4

INPUT LEVEL 1 : Quoted market price for the identical asset
Input Level No.2: Quoted Market Price for similar asset or the same asset in an inactive market.
INPUT LEVEL 3: PV of discounted future cash-flow its the least reliable because assumptions and expectations are involved.