Fair Value Measurements

Question 1

What is fair value?

Answer 1

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

Question 2

What are market participants?

Answer 2

Not related parties
-knowledgeable
-willing and able
-FVM is market based, not entity specific

Question 3

What is an orderly transaction?

Answer 3

assumed to occur in reporting entity’s principal market
FMV is the price in that market without adjustment for the transaction cost

Question 4

Valuation Techniques

Answer 4

1 Market approach - based on info from market transactions involving identical/comparable items
2 Income approach - uses valuation methods based on current market expectations about future amounts
3 Cost approach - based on current replacement value

Question 5

Observable/Unobservable inputs

Answer 5

Observable - based on market data obtained from independent sources
Unobservable - based on the entity’s assumption of market participants
Observable>Unobservable

Question 6

Fair Value Hierarchy - Level 1

Answer 6

most reliable
unadjusted quoted prices in active markets for identical assets

Question 7

Fair Value Hierarchy - Level 2

Answer 7

Observable, but exclude quoted prices within level 1
quoted price for similar items in active markets
quoted prices in from inactive markets
observable inputs that are not quoted prices

Question 8

Fair Value Hierarchy - Level 3

Answer 8

Least reliable, unobservable
should be based on best info available