Recognition and measurement

Question 1

items that entities may elect to measure and report FV

Answer 1

Recognized financial Assets or Liabl
Firm commitments
Written loan commitmenst
Rights and obligations under insurance contract and warranties
Other financ instrument embedden in nonfinancial derivative instruments

Question 2

Financial assets and financial liabilities that may NOT use FV to measure and report

Answer 2

. An investmt in a subsidiary of variable interest to be consolidated
. Employer’s and plans’ obligations for pension benefits, other postretirement benefits, postemplyment benef
. Financ assets and Liab under lease acct
. Demand deposit liabilites of financial institutions
. Financial Instruments classified by the issuer as a component of Shareholdes’ equity

Question 3

Define entry Price

Answer 3

(transaction price)the price paid to acquire an asset of recv to assume a Liab

Question 4

Define Exit Price

Answer 4

(fair value)a price that would be rcv to sell an asset of paid to transf a liab

Question 5

Situations where “entry price” would not be “exit price”

Answer 5

• The transaction is betw related parties
• The transct occurs when the seller is under duress
• The unit od acct included in the transaction price is different from the unit of acct that would be used to measure at FV
• The mrkt in which the transaction price occurred is different from the makt in which the asset would be sold or the liab transferred

Question 6

Which are the valuation techniques and approaches

Answer 6

1. Mkt approach: this approach uses prices and relevant info generated by mkt transactions involving Ass and Liab that are comparable to those being valued (GAAP)
2. Income Approach: converts future amts to a single present amt. discontinued future Cash flows
3. • Cost approach:used the amt that currently would be req to replace the svc capacity of an asst (current replacement cost), adjusting for obsolence

Question 7

dates when an entity may elect to use FV option for an elegible item

Answer 7

• When the item is first recognized
• When firm commitment occurs
• when finac asset previously reported at FV w.unrealized gai/loss in earnings no longer qualifies for that fair value treatment
• When accounting treatment for an invest changes becuase it becomes subject to the equity method or ceases to be eligible for consolidation
• When an item is measured at fair value at the time of an event but does not require fair value measurement at sugsequent reporting date

Question 8

Requirements for Fair value option (FVO)

Answer 8

1- FVO may be applied to a single instrument by instrument basis, except for:

i. multiple adv to a borrower, must be applied to all advs under the contract
ii. an invest that would otherwise be accounted for under the equity method, it must be applied to all the investor’s financial interest, both equity and debt, in that entity
iii. If the fair value option is applied to an eligible insurance/reins contract, it must be applied to all claims/obligations and features/coverages under the contract
2. FVO is irrevocable unless and until a new wlectiond ate for the specific item occurs
3. FVO is applied only to an entire instrument and not only specific risks, CshF, or portion of an instrument
4. If FVO is elected for held to maturity securities, it will be treated and reported as trading securities
a. Gains and loss result from change in FV will not be reported in OCI
b. Gain/loss resulting from changes in FV will be reported in current income

Question 9

Recognition measurement

Answer 9

A/R NRV or settlement rate
Long Term A/R Present value of future CF
Equipment Historical cost
Trading securities Current Mkt value
Short term AP Historical cost or historical proceeds
bonds pybl d10ry Present value of future Cash F
Avbl x sale securities Current MKT value