Fair Value--pg44-56

Question 1

Components of Fair Value Definition

Answer 1

1. Market based measurement not entity-specific
2. Can be stand alone asset/liability or group
3. Occur under current market conditions not in forced liquidation or distress sale
4. Assumes transaction takes place at that date regardless of observable market
5. Assumed transaction establishes basis for estimating price
6. Occur in either principal market or advantageous market
7. Price determined in market should not be adjusted with for transaction cost, but cost incurred to transport to market is adjusted
8. Market participants
   a. independent of reporting entity
   b. acting in their best economic interest
   c. knowledgeable of asset/liability and transaction
   d. Able and willing but not compelled to transact

Question 2

Principal Market

Answer 2

One with greatest volume level of activity which reporting entity could sell or transfer

Question 3

Advantageous Market

Answer 3

One in which reporting entity could sell asset at price that maximizes amount received for asset or minimizes amount paid to transfer liability

Question 4

What are the special disclosures required for fair value measurements (on a recurring basis) that are based on unobservable inputs (i.e., Level 3 inputs)?

Answer 4

1. Reconciliation of beginning and ending balances;
2. Description of the valuation process used;
3. Quantitative information about the unobservable inputs used;
4. Narrative description of the sensitivity of fair value to changes in unobservable inputs;
5. Unrealized gains/losses for the period and where reported.

Question 5

Distinguish between assets and liabilities measured at fair value on a recurring basis and nonrecurring basis.

Answer 5

Assets and liabilities measured at fair value on recurring basis are adjusted to fair value period after a period. Assets and liabilities measured at fair value on a nonrecurring basis are adjusted to fair value only at the time of a particular event (e.g., significant modification of debt).

Question 6

What significant fair value disclosures are required only in annual statements?

Answer 6

The methods and significant assumptions used to estimate fair value.

Question 7

What types of comparisons are fair value option disclosures intended to facilitate?

Answer 7

1. Between entities that choose different measurement methods for similar assets and liabilities;
2. Between assets and liabilities in the financial statements of an entity that selects different measurement for similar assets and liabilities.