M4 - Fair Value Measurements Flashcards
True or False: The FV of an asset or liability is specific to the entity making the FV measurement.
False, FV is a market-specific measure, not an entity-specific measure.
True or False: FV is the price to acquire an asset or assume a liability.
False, FV is an exit price (the price to sell an asset or transfer a liability), not an entrance price.
True or False: FV includes transportation costs , but not transaction costs.
True
True or False: The price in the principal market for an asset or liability will be the FV measurement.
True
Are Level 1 measurements quoted prices in active markets for identical or similar assets or liabilities?
identical
Are Level 2 measurements quoted prices in active markets for identical or similar assets or liabilities?
similar
Are FV measurements based on management assumptions only (no marketed data) acceptable per GAAP?
Yes, this is a level 3 measurement and is acceptable when there are no level 1 or level 2 inputs or when undue cost or effort is required to obtain level 1 or level 2 inputs.
Is the level in the FV hierachy of FV measurement determined by the level of the highest or lowest level of significant input?
Lowest. The level in the FV hierarchy of a FV measurement is determined by the level of the lowest level significant input.
True or False: When there is no principal market, the price in the most advantageous market is the FV measurement.
True
True or False: FV does include transactions costs.
False.
Is a change from cost approach to the market approach of measuring FV considered a change in accounting principle, change in valuation technique, error correction, or change in accounting estimate?
Change in accounting estimate,
a change in the valuation technique used to measure FV is a change in accounting estimate. Although a change from the cost approach to the market approach is a change in valuation technique, a change in valuation technique is not defined as a type of accounting change, but instead falls into the category of changes in accounting estimate.
Are inputs that are principally derived from or corroborated by observable market data, a level 1,2, or 3 input for measurement of FV?
Level 2
True or False: The FV of a nonfinancial asset is the value at its highest and best use.
True
Which method of determining FV would an entity’s discount rate be most important? Cost, Market, Income, or highest and best value approach?
Income,
The income approach determines FV by converting future amounts, including cash flows or earnings, to a single discounted amount. This would require the use of a discount rate.
The market approach determines FV by using prices and other relevant info from market transactions involving identical or comparable assets or liabilities to determine FV.
The cost approach determines FV by using current replacement cost.
Although the FV of nonfinancial assets is the value of the assets at their highest and best use, this is not actually a method for determining value. Value is determined in one of 3 ways: the market approach, the income approach, or the cost approach.
