Deck 4: Fair Value Measurement

Question 1

Which valuation technique uses option pricing models to determine fair value?

A) Income approach
B) Cost approach
C) Market approach
D) Asset approach

Answer 1

C

Question 2

Which type of risk must be incorporated in determining the fair value of a liability?

A) Market risk
B) Non-performance risk
C) Interest rate risk
D) Portfolio risk

Answer 2

B

Question 3

Which use of a non-financial asset is being considered when zoning regulations are applicable?

A) Physically possible
B) Financially feasible
C) Fair value measurement
D) Legally permissible

Answer 3

D

Question 4

Which characteristic(s)must considered when measuring the fair value of an asset?

A) Location of the asset
B) Physical condition of the asset
C) Both A and B
D) Neither A and B

Question 5

Explain the valuation premise and discuss how it is used,depending on what is identified as the highest and best use.

Question 6

Which of the following is not a criticism of fair value measurement?

A) Fair value measures can be unreliable
B) Fair value measurements caused the global financial crisis of 2007
C) The measurements are not always relevant
D) The measurements impact the statement of financial position

Question 7

What term describes the market with the greatest volume and level of activity for an asset or liability?

A) Secondary market
B) Principal market
C) Stock market
D) International exchange

Question 8

Which of the following is not a key characteristic of the definition of fair value?

A) The concept of an exit price
B) The characteristics of the transaction for the purpose of measuring value
C) The identification of the asset or liability that is being measured at fair value
D) The characteristics of the reporting entity

Question 9

The fair value definition relates to which elements of financial statements?

A) Revenues and expenses
B) Assets and Liabilities
C) Equity and Liabilities
D) Dividends and Taxes

Question 10

What is the purpose of AASB 13,'Fair Value Measurement'?

A) What to measure as fair value
B) When to disclose fair value measurements
C) How to measure fair value
D) Determining why fair value measurements are appropriate

Question 11

Which measurement is utilised when non-financial assets are assessed for fair value purposes?

A) Highest and best use
B) Historical cost
C) Lower-of-cost-or-market
D) Average use

Question 12

At which date must an entity have access to the principal or most advantageous market?

A) Balance sheet date
B) Reporting date
C) Measurement date
D) The last date of the fiscal quarter

Question 13

List and give examples of the inputs of the fair value hierarchy.

Question 14

When making a fair value measurement,management of the entity should strive to maximize ________ while minimizing _________.

A) Observable inputs; market value
B) Transaction costs; transport costs
C) Observable inputs; unobservable inputs
D) Sufficient data; transaction costs

Question 15

Explain the differences between the concept of unit of account and valuation premise.

Question 16

Which term describes the exit price of an asset at the measurement date?

A) Replacement cost
B) Current cost
C) Fair value
D) Historical cost

Question 17

On which type of transaction is the measurement of fair value based?

A) Hypothetical
B) Actual
C) Anticipated
D) Standard

Question 18

Discuss the three widely used valuation techniques utilised to determine the appropriate fair value measurement.

Question 19

Which type of cost may be adjusted when determining fair value?

A) Transaction costs
B) Transport costs
C) Both A and B
D) Neither A nor B

Question 20

What is the level at which an asset or a liability is aggregated or disaggregated for recognition purposes?

A) Transaction
B) Unit of account
C) Balance Sheet
D) Corporate

Question 21

What is likely to occur when a seller is in financial distress or is legally required to dispose of an asset or liability?

A) The transaction will not be orderly
B) Marketing activities are hot adhered to
C) The transaction price can be confidently relied upon
D) The objective of fair value measurement changes

Question 22

Which of the following is an example of a non-recurring fair value measurement?

A) Inventory
B) Income taxes payable
C) Land held for sale
D) Current liabilities

Question 23

What is used to assess fair value when there is insufficient evidence to reach a conclusion about whether a transaction is orderly?

A) Transaction price
B) Future cash flows
C) Quoted stock prices
D) Volume of the transaction

Question 24

Market-corroborated inputs are examples of:

A) Level 3 inputs on the fair value hierarchy
B) Level 1 inputs on the fair value hierarchy
C) Level 2 inputs on the fair value hierarchy
D) Items not included on the fair value hierarchy

Question 25

How may an exit price be determined?

A) Direct observation
B) Estimation
C) Both A and B are correct
D) Neither A nor B is correct

Question 26

Which level of the fair value hierarchy can be utilised without any adjustments?

A) All levels
B) Level 3
C) Level 1
D) Level 2

Question 27

Which of the following is not a characteristic of a market participant?

A) Knowledgeable
B) Ethical
C) Independent
D) Willing to transact

Question 28

Which of the following is an example of a Level 3 input,according to the fair value hierarchy?

A) Quoted stock prices
B) Quoted prices for similar assets in active markets
C) Quoted prices in non-active markets
D) Future net cash flows used to value a business

Question 29

A wide bid-ask spread is indicative of

A) An increase on market volume or activity
B) A decrease in market volume or activity
C) A Level 1 input in the fair value hierarchy
D) Highly developed price quotations

Question 30

What caused the IASB to increase the required disclosures related to fair value measurements?

A) AASB 13
B) The Global Financial Crisis (GFC)
C) Non-recurring fair value measurements
D) IASB convergence

Question 31

Which valuation technique uses internal rate of return and present value techniques to determine fair value?

A) Cost approach
B) Time value approach
C) Market approach
D) Income approach

Question 32

Which of the following is an example of a Level 1 input,according to the fair value hierarchy?

A) Quoted stock prices
B) Market-corroborated inputs
C) Future net cash flows
D) Quoted prices for similar assets

Question 33

Which valuation technique considers replacement cost of an asset when determining fair value?

A) Income approach
B) Cost approach
C) Market approach
D) Lower-of-cost-or-market approach