FAR_Section_1.4 Flashcards
ASC 820
Does not allow, nore require assets or liabilities be report at fair value unless there is another requirement to do so
An entity is required to recognize various items at fair value, including the following:
Investments in marketable debt or equity securities that are classidied as either trading securities or available for sale securities are reported as fair value (market-to-market) as of each balance sheet: unrealized gains and loses on trading securities are recognized in the statement of income; unrealized gains and loses on available for sale securities are recognized in other comprehensive income
With very few exceptions, assets aquired and liabilities assumed in a business combination are intially recognized at___
fair value, but are not adjusted to fair value in subsequent periods for presentation on the balance sheet
Impairment losses
result in the reduction in the carrying calue of an asset to its fair value in the period of the impairment
Impairment recievable are recognized when___
recognized when it is ecpected that some or all payments will either not be received or not received as scheduled
Derivatives
reported at fair value; unrealized gains and loses are reported income and designeated as cash flow hedges accumulate in other comprehensive income until recognized at the same time as the gain and loss on the hedges items
Items that do not qualify for the fair value election:
pension plan, post retirement, other employment benefits, leases, financial instruments that are components of equity, share based payments and stock options
When the fair value option is elected, ___
unrealized gains and losses are reported in income
Exit Price
price that would be received to sell the asset or paid to transfer the liability
Entry Price
price that would be paid to acquire the asset or received to assume the liability
Principal Market
asset or liability would most frequently be traded
Most advantageous market
no principal market, values are based on the assumption that a transaction would occur
Market approach
invovles using inofmration generated by market transactions that involve identical or comparable assets or liabilities
Income approach
involves analyzing future amounts in the form of revenues, cost savings, earnings, or some other item
Cost approach
involves measuring the cost that would be incurred to replace the benefit derived from an asset
3 levels of inputs - Level I
the most reliable, involves the use of observable data from actual market transactions, occuring in an active market, fo identical assets or liabilities
3 levels of inputs - Level II
involves the use of obervable data from actual market transactions but either: transactions did not occur in an active market, or transactions relate to similar, but not identical, assets or liabilities
3 levels of inputs - Level II
invovles the use of unobervable data and are largely based on management’s judgement
Disclosures
the user of fair value to measure assets and liabilities should provide users of financial statements with better information about the extent to which fair value is used to measure recognized assets and liabilities, the inputs used o develop the measurements, and the effect of certain measurements on earnings (or changes in net assets for the period)
Fair Value/exchange price
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
Some assets are more valuable in____and are measured at what would be received upon slae
exchange
Others are more valuable in___and are mreasured at the value represented in the form of same combination of potential revenues earned and costs saved that result from their use.
use
Using cash flow info and present value in accounting measurements (SPAC #7)
framework using future cash flows as the basis for accounting measurements at intial recognition of fresh-start measurements and for the interest method of amortization
Risk
the probability that the cash will actually be paid or received
Timing
the periods in which the payments are expected to be received
Interest
the interest rates that would be appropriate taking into consideration market rates and the credit standing of the parties involved
Amount of Cash Flows - Traditional Approach
use most likely cash flow amounts; Ex) Cash flow has a 10% chance of being $100, 60% chance of $200, 30% chance of $300?.$200
Amount of Cash Flows - Expected Approach
use weighted average of different possibilities; Ex) Cash flow has a 10% chance of being $100, 60% chance of $200, 30% chance of $300?.$220 [(10% * $100) + (60% * $200) + (30% * $300)]
