Recognition and Measurement Flashcards
Entry Price
amount paid in order to acquire an asset or received to assume a liability (pay)
Exit Price
amount received to sell an asset or paid to transfer a liability (receive)
Reasons when entry price does not equal exit price
- transaction is between related parties
- seller is under duress
- unit of account/measure is different than basis for FV determination
- market is different than market for FV determination
If the transaction price (entry price) is different than the fair value (exit price); a gain or loss is recognized in income
true
Approaches in determining FV
Income Approach- discounts future amounts to a current present value
Cost Approach- uses current amount required to replace the service value of an existing asset
Market Approach-use prices generated by real market transactions for identical or similar items
What can entities measure at FV?
- financial assets/financial liabilities
- written loan commitments
- rights/obligations under warranties and insurance contracts that can be settled by paying a third party
- firm commitments not otherwise recognized and that involve only financial instruments
What can entities not measure at FV?
- investments in entities to be consilidated
- obligations or assets related to pension or other employee-oriented plans
- lease related financial assets or liabilities
- demand deposits of financial institutions
- instruments that are components of shareholder equity
When can FV be elected?
- when the item is first recognized
- when an eligible firm commitment occurs
- when an accounting treatment of an investment in another entity changes
FV Option Application Requirements
- does not need to apply to all instruments issued or acquired in a single transaction
- must be applied to an entire instrument, not just to specific elements of an instrument
