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Flashcards in F10: Fair Value Measurement Deck (22):
1

Fair Value definition

The price that would be received to sell an asset OR paid to transfer a liability

2

Fair Value AKA

"Exit Price"

3

Fair value is a _______-based measure, not a _____-based measure

Market-based measure, not an entity-based measure

4

Fair value is measured in what market?

Principal market

5

Fair value does not include what?

Transaction costs

6

Orderly transaction definition

Asset or liability is exposed to the market for a period of time before measurement date

7

Orderly transaction is not a what transaction?

Forced

8

The Principal Market is what?

-The first option
-The market with the greatest volume or level of activity

9

The Most Advantageous Market is what?

-The second option
-The market with the best price for the asset or liability, after considering transaction costs

10

In a most advantageous market, what is not included in fair value measurement?

Transaction costs

11

3 Valuation Techniques

1- Market Approach
2- Income Approach
3- Cost Approach

12

Valuation technique selection should maximize what?

-Maximize the use of observable inputs and minimize the use of unobservable inputs

13

A change in Valuation Technique is treated how?

As a change in accounting estimate (prospectively)

14

Market Approach definition

Uses prices and other info from the market of comparable assets/liabilities

15

Income Approach definition

Uses PV of discounted cash flows (future amounts)

16

Cost Approach definition

Uses current replacement costs

17

What is the Heirarchy of Inputs?

-Level 1 Inputs (highest priority)
-Level 2 Inputs
-Level 3 Inputs (lowest priority)

18

Level 1 Inputs

= Identical
-Quoted prices in active markets for identical assets/liabilities on the measurement date

19

What Level is the most reliable level and should be used if available?

Level 1

20

Level 2 Inputs

= Similar
-Quoted prices in active markets for similar
-Quoted prices in nonactive markets for similar

21

Level 3 Inputs

= Discounted cash flows
-Unobservable inputs for the asset/liability

22

When should Level 3 Inputs be used?

Only when no observable inputs or when undue cost and effort is required to obtain observable inputs