M6 Flashcards
When should assets/liabilities not be measured at fair value
Any of the following
Impractical to measure fair value
Fair value cannot be determined
Fair value cannot be measured reliably
What is the definition of Fair value
The price received to sell an asset or transfer a liability in an orderly transaction in the principal market
Exit price
Does Fair value include transaction costs?
No but it may include transportation costs if location is an attribute
What determines the fair value of a nonfinancial asset
The highest and best use (the most profitable use) nonfinancial only
What is an orderly transaction?
An orderly transaction is not a rushed sale
What determines the principal market
The market with the greatest volume (entity must have access to that market) The principal market determines the fair value
What is the most advantageous market?
The market with the best price after considering transaction costs
Asset (maximizes selling price of the asset)
Liability (minimizes payment to transfer liability)
Fair value will not include transaction costs
What are the two steps in the GAAP framework for measuring fair value
- outlines the valuation techniques
- Establishes a hierarchy of inputs to be used in the valuation techniques
What are the 3 valuation techniques
MIC
Market approach - uses identical or comparable assets or liabilities to measure fair value
Income approach - converts future amounts, including cash flows or earnings, to a single discounted amount to measure fair value (assets or liabilities)
Cost approach - uses current replacement cost to measure fair value of assets
What is the hierarchy of inputs
- Quoted prices in active markets for identical assets/liabilities (can be unadjusted)
- inputs other than quoted market prices that are indirectly observable for the asset or liability
-Quoted prices of SIMILAR assets or liabilities
-Other observable inputs
- inputs other than quoted market prices that are indirectly observable for the asset or liability
- unobservable inputs, reflect assumptions based on best available information
What iis included in the fair value disclosures
Valuation techniques, inputs, judgement and assumptions
Uncertainties in measurements
How changes in FV measurements of level 3 measurements affect performance and cashflows
What value is land recorded at?
Historical cost
With no impairment how should goodwill be valued?
At historical cost
Are equity investments or accounts receivable cash equivalents?
No
How are bonds valued?
At amortized cost
