Notes of a Third year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Accounting by using this notes. If you are struggling with Financial Accounting use this not...
Objective
Define, measure and disclose fair value.
Definition of fair value 9 Measuring fair value 27
Non-financial Fair value @ highest and best
The price that would be received to sell
assets use of market participants.
an asset or paid to transfer a liability in
an orderly transaction between market Financial assets
participants at the measurement date.
Difference between transaction
price and fair value → P/L
• The price 24 - 26
Exit price directly observable, Application of fair
before transaction costs value @ initial Dt Investment
Or recognition Dt Loss/Ct Gain on initial
Using valuation method recognition
(include transport costs only if Ct Bank
location is characteristic of Liabilities and own equity
asset)
@ quoted price
• Asset or liability 11 If not available:
Consider characteristics of Held as assets by Measure from perspective of
asset/liability: other parties market participant that holds
- Condition and location assets
- Restrictions on sale/use
Not held by other Measure from perspective of
• Orderly transaction 15 - 16 parties as assets market participant that owes
Principal market liabilities
Not available → most Three valuation techniques 61-62
advantageous market Market Cost approach Income
approach approach
• Market participants 22 Adjusted
1. Consider their assumptions Quoted prices replacement Present value
2. Should be independent, cost techniques
knowledgeable, willing and
able to enter into transaction
• Measurement date Definitions in Appendix A
Initial recognition/reporting date
Level 1 inputs: Quoted prices for identical items in active market.
Fair value hierarchy
Observable inputs.
72, 76, 81, 86
→ Quoted prices for similar items in an active
market,
Level 2 inputs: → quoted for identical items in an inactive market
or
→ observable interest rates and yields.
Unobservable inputs or significant adjustments to
Level 3 inputs:
observable inputs
• Increase the quality of presentation and disclosure,
• assist user financial statements to assess risk in relation to the fair value and
• make decisions regarding that risk.
information about fair value and how it was determined → more transparent
.
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