Flashcards in F10: Fair Value Measurement Deck (22):
Fair Value definition
The price that would be received to sell an asset OR paid to transfer a liability
Fair Value AKA
Fair value is a _______-based measure, not a _____-based measure
Market-based measure, not an entity-based measure
Fair value is measured in what market?
Fair value does not include what?
Orderly transaction definition
Asset or liability is exposed to the market for a period of time before measurement date
Orderly transaction is not a what transaction?
The Principal Market is what?
-The first option
-The market with the greatest volume or level of activity
The Most Advantageous Market is what?
-The second option
-The market with the best price for the asset or liability, after considering transaction costs
In a most advantageous market, what is not included in fair value measurement?
3 Valuation Techniques
1- Market Approach
2- Income Approach
3- Cost Approach
Valuation technique selection should maximize what?
-Maximize the use of observable inputs and minimize the use of unobservable inputs
A change in Valuation Technique is treated how?
As a change in accounting estimate (prospectively)
Market Approach definition
Uses prices and other info from the market of comparable assets/liabilities
Income Approach definition
Uses PV of discounted cash flows (future amounts)
Cost Approach definition
Uses current replacement costs
What is the Heirarchy of Inputs?
-Level 1 Inputs (highest priority)
-Level 2 Inputs
-Level 3 Inputs (lowest priority)
Level 1 Inputs
-Quoted prices in active markets for identical assets/liabilities on the measurement date
What Level is the most reliable level and should be used if available?
Level 2 Inputs
-Quoted prices in active markets for similar
-Quoted prices in nonactive markets for similar
Level 3 Inputs
= Discounted cash flows
-Unobservable inputs for the asset/liability