Far Deck 4

Question 1

Define Fair Value Measurement:

Answer 1

FV measurement is a market specific measurement not entity specific. It is measured at the exit price (selling). Price to sell an asset or transfer liability

Question 2

What is a Level 1 Input?

Answer 2

This is the most reliable type of input. It covers quoted prices in active markets for identical assets or liabilities only

Question 3

What are Level II inputs?

Answer 3

Levels 2 inputs are inputs other than quoted market prices that are directly or indirectly observable for the asset or liability. These include:

quoted prices for similar assets or liabilities in active markets.
quoted prices for identical or similar assets in markets that are not active
quoted prices for identical liabilities when traded as assets, if adjusted to the quoted market price of the assets are required
quoted prices for similar liabilities when traded as assets
inputs other than quoted prices that are observable for the asset or liability
inputs that are derived from or corroborated by observable market data

Question 4

What are level 3 inputs?

Answer 4

Level 3 inputs are unobservable inputs for the asset or liability. This reflects the reporting entities assumption and should be based on the best available info. Only used when no level 1 or 2 or the cost for level 1 or 2 input is too much

Question 5

What does Principal Market mean in Fair Value?

Answer 5

Principal market is the market with the greatest volume of activity for the asset or liability.

Question 6

What does it mean when there is NO principal market in fair value?

Answer 6

When there is no principal market in fair value you are looking for the best quoted price and most advantageous market. Deduct transaction cost from the stock price and go with the higher selling price.

Question 7

What is a change from a cost approach to a market approach?

Answer 7

Change from a cost approach to a market approach is a change in valuation technique which is a change in accounting estimate.