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Flashcards in Conceptual Framework & IFRS Deck (22)
1

Historical Cost

Amount you paid for it (PP&E)

2

Replacement Cost

What it would cost to replace an item (inventory)

3

FMV (Fair Market Value)

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

4

NRV (Net Realizable Value)

Amount expected to be converted into (A/R)

5

PV (Present Value)

Discounted cash flows due to the time value of money (Notes/Receivable, Bonds/Payable, Leases)

6

Fair Value: Fair value option for reporting

the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date at exit price
+An orderly transaction is a transaction that allows for normal marketing activities that are usual and customary (Not Forced transaction)
=Exit price (Not Entry price)

7

Fair Value: Applying FV measurement approach

1) Identify ASS or LIAB
2) Determine principle or most advantageous market
3) Determine the valuation premise
4) Determine appropriate valuation technique
5)Levels - Obtain inputs for valuation
6) Calculate FV of asset

8

Fair Value: Principle Market

Greatest Volume and level of activity occurs

9

Fair Value: Most advantageous market

Maximizes price received for the asset or minimizes amount paid to transfer the liability

10

Fair Value: Valuation premise

Assume the highest and best use premise to determine the fair value
+in-use - if maximizes value by using it with other assets as a group
+in exchange - if asset provides maximum value on a stand-alone basis

11

Fair Value: Market approach

uses prices and relevant information from market transactions for identical or comparable ASS/LIAB

12

Fair Value: Income approach

uses PV techniques to discount cash flows or earnings

13

Fair Value: Cost approach

uses current replacement cost - change in method is considered a change in accounting estimate

14

Fair Value: Hierarchy

must be used to prioritize the inputs to valuation techniques

15

Fair Value: Hierarchy: Level 1

quoted prices from active markets

16

Fair Value: Hierarchy: Level 2

direct/ indirect observable inputs
(yield curves, bank prime rates, interest rates, credit risks, default rates on loans)

17

Fair Value: Hierarchy: Level 3

unobservable inputs if level 1 or 2 are not available
(financial forecasts or expected cash flow estimates)

18

Fair Value Option Applies to

+ Availible-for-sale
+ Held-to-Maturity
+ Equity Method
+ Certain financial LIAB, firm commitments that involve financial instruments, written loan commitments, non-financial insurance contracts settled by 3rd-party, warranties for 3rd party, host financial instrument, ect.

19

IASB Bases of measurement

+Historical cost
+Current cost
+Realizable value
+Present Value

20

IASB Current cost

Amount to acquire currently

21

IASB Realizable value

Amount to sell asset in orderly disposal

22

IASB PV

discounted cash flows