FAR 2 Module 6

Question 1

How is the fair value measurement option applied to financial instruments?

Answer 1

The fair value measurement option is applied on an INSTRUMENT-BY-INSTRUMENT basis,
elected separately for each eligible financial asset or liability and cannot be partially applied to a single instrument.

Question 2

If no principal market, how would you determine fair value?

How about in cases of sales proceeds

Answer 2

Use the quoted stock price for the stock with the highest net

SALES PROCEEED: In this case the fair value will exclude the transaction cost.

Question 3

What is the correct definition of fair value measurement?

Answer 3

Fair value is a market-based measurement

Fair value is the price that would be received to sell an asset
Or paid to transfer a liability in an orderly transaction

in the principal market on the measurement date

Question 4

How is the fair value of an asset or liability measured?

Answer 4

The PRICE THAT WOULD BE RECEIVED when selling an asset or paid when transferring a liability

In an ORDERLY TRANSACTION between market participants

Question 5

How is the fair value of an impaired building measured?

Answer 5

Question 6

What is the difference between sales proceeds and quoted price in determining fair value?

Answer 6

Question 7

What defines a market participant in a transaction?

Answer 7

Question 8

What are the three main valuation techniques (approaches) for determining fair value?

Answer 8

Question 9

How is the fair value of an investment determined when traded in an active market?

Answer 9

Question 10

What are the three levels of inputs used in valuation techniques?

Answer 10