Fair Value

Question 1

Fair Value definition

Answer 1

Price that would be rcvd when selling an asset or paid when transferring a liability in an orderly transaction between market participants

Question 2

Is fair value based on a hypothetical transaction?

Answer 2

Yes

Question 3

Is fair value based on exit price?

Answer 3

Yes

Question 4

Should fair value be adjusted for transport cost and transaction cost?

Answer 4

Transport cost - yes

Transaction cost - no

Question 5

If there is no principal market to determine fair value how to proceed?

Answer 5

Use the most advantageous market. Determined by which maximizes amt rcvd when selling, amt pd when transferring liability. Transaction cost pd by seller taken into account

Question 6

Fair value intended to increase consistency and comparability. T/F?

Answer 6

True

Question 7

What items are excluded from fair value purview?

Answer 7

Share-based payments (stock) and inventory valuing

Question 8

How many levels of fair value hierarchy are there? Which is most desired?

Answer 8

3 levels, level 1 is most desirable.

Question 9

What comprises level 1 fair value hierarchy category?

Answer 9

Quoted prices for identical assets/liabilities in active markets

Question 10

What comprises level 2 fair value hierarchy category?

Answer 10

Obervable inputs other than quoted prices in active markets for identical items