FV Framework

Question 1

FV

Answer 1

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

• market based measurement (bond or business)
• should consider the attributes of the specific item that is being measured (conditions, location, restriction on use)
• FV is not based on the buyers unique perspective

Question 2

Orderly Transaction

Answer 2

hypothetical transaction

• assumed to occur at measurement date
• assumed to occur at current market conditions
• not assumed to occur in a forced liquidation or distressed sale

Question 3

Hypothetical Transaction

Answer 3

assumed to occur in principal market or most advantageous market for the item which the entity has access

Question 4

Principal Market

Answer 4

market available to the entity with the greatest volume and level of activity for the item

Question 5

Advantageous Market

Answer 5

market available to the entity that maximizes selling price or minimizes transfer price

Question 6

Elements of FV

Answer 6

determined in the principal or most advantageous market

• should not be adjusted for transaction cost (incremental cost to direct sale or transfer) which does not measure a characteristic of the asset, liability, or equity item
• should be adjusted for cost of transporting item to market (location characteristic)

Question 7

Market Participants

Answer 7

• buyers/sellers that are independent of the reporting entity
• acting in their economic best interest
• knowledgeable of the item being measured or transaction type
• able and willing to entire a transaction but not compelled to do so

Question 8

Fair Value definition for NonFinancial Assets

Answer 8

-assumes the highest and best use by market participants even if it will be used in some other way by the reporting entity

Question 9

Highest and Best Use

Answer 9

physically possible
legally permissable
financially feasible

In-use (non-financial assets)
In-Exchange (financial assets)

Question 10

FV definition for Liabilities

Answer 10

assumes the liability is transferred to a third party, not settled
-liability continues but as an obligation of another party
(not based on the price to settle the liability)
-nonperformance risk is assumed unchanged after transfer
-adjustment should be made for transfer restrictions

Question 11

FV definition for Shareholder Equity

Answer 11

eg. equity interest issued as consideration in a business combination

measurement is from perspective of market participant that holds the equity item as an asset