01.04- Fair Value

Question 1

What are the six steps for Fair Value measurement?

Answer 1

1) Identify the asset or liability to be measured
2) Determine the principal or most advantageous market
3) Determine the valuation premise
4) Determine the appropriate valuation technique
5) Obtain inputs for valuation
6) Calculate the fair value of the asset

Question 2

What four items are required to be recognized at fair value?

Answer 2

• Investments in marketable debt that are classified as TRADING SECURITIES or AVAILABLE FOR SALE
• Assets and liabilities when first recognized (but not in future periods)
• Impairment Losses
• Derivatives

Question 3

Where are UNREALIZED GAINS OR LOSSES on TRADING SECURITIES recognized?

Answer 3

• Statement of Income

Question 4

Where are UNREALIZED GAINS OR LOSSES on AVAILABLE FOR SALE recognized?

Answer 4

• Other Comprehensive Income

Question 5

When is an IMPAIRMENT OF A RECEIVABLE recognized?

Answer 5

• When it is expected that some or all payment will not be received, or not be received on schedule.
• The fair value of the impairment would be the expected amount to be received.

Question 6

What other two items are tested annually for IMPAIRMENT?

Answer 6

• Goodwill

- Intangibles

Question 7

When are DEPRECIABLE ASSETS and AMORTIZABLE INTANIGIBLES evaluated for an adjustment to their FAIR VALUE?

Answer 7

When there is an indication that they have been impaired

Question 8

Which DERIVATIVES are reported at FAIR VALUE?

Answer 8

ALL OF THEM

Question 9

Where are UNREALIZED GAINS AND LOSSES reported for DERIVATIVES? What is the one exception to this rule? Where is that exception reported?

Answer 9

• Income
• Exception: Derivatives that are designed as cash flow hedges
• Reported in Other Comprehensive Income

Question 10

Which four items are NEVER reported at FAIR VALUE?

Answer 10

• Pension plans and other retirement benefits
• Leases
• Financial instruments that are components of equity
• Share based payments and stock options

Question 11

What three things are considered FINANCIAL INSTRUMENTS?

Answer 11

• Cash
• Ownership Interest
• A contract that imposes an obligation to receive another financial instrument

Question 12

Which two examples of FINANCIAL ASSETS AND LIABILITIES would qualify for the FAIR VALUE ELECTION?

Answer 12

• Most investments

- Firm commitments involving financial instruments

Question 13

Where would UNREALIZED GAINS OR LOSSES for AVAILABLE FOR SALE SECURITIES be reported at FAIR VALUE?

Answer 13

• Income Statement

Question 14

Where would UNREALIZED GAINS OR LOSSES for HELD TO MATURITY SECURITIES be reported at FAIR VALUE?

Answer 14

• Income

Question 15

Where would UNREALIZED GAINS OR LOSSES for INVESTMENTS accounted for under the EQUITY METHOD be reported at FAIR VALUE?

Answer 15

• Income

Question 16

Once an option is elected, where FAIR VALUE or otherwise, can it be changed?

Answer 16

no!

Question 17

If you elect to do FAIR VALUE for a financial instrument, do you need to do fair value for all other similar financial instruments that you own?

Answer 17

no!

Question 18

What is FAIR VALUE for CASH?

Answer 18

Face amount

Question 19

What is FAIR VALUE for INVESTMENTS IN MARKETABLE SECURITIES?

Answer 19

Market value

Question 20

What is FAIR VALUE for ACCOUNTS RECEIVABLE?

Answer 20

Net realizable value

Question 21

What is FAIR VALUE for INVENTORY?

Answer 21

Replacement cost

Question 22

If FAIR VALUE isn’t defined by literature, what should be used?

Answer 22

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurable date.

Question 23

MARKET PARTICIPANTS are what four things?

Answer 23

• Independent of the entity
• Reasonably knowledgeable about the asset or liability
• In a position to acquire the asset or assume the liability
• Voluntarily willing to acquire the asset or assume the liability

Question 24

What is the EXIT PRICE?

Answer 24

The price to sell the asset or paid to transfer the liability

Question 25

What is the ENTRY PRICE?

Answer 25

The price paid to acquire the asset or received to assume the liability.

Question 26

What type of PRICE is the focus of the EXCHANGE PRICE NOTION?

Answer 26

Exit price