Deck 10: Fair Value Accounting

Question 1

Which of the following is NOT part of the old definition of fair value?

A)An arms-length transaction.
B)The amount an asset could be exchanged for.
C)The amount a liability could be settled for.
D)At measurement date.

Answer 1

D

Question 2

Which of the following is NOT one of the reasons given for issuing IFRS 13?

A)To clarify the definition of fair value.
B)To replace the use of historical cost.
C)To enhance disclosure.
D)To provide a single source of guidance on the use of fair value.

Answer 2

B

Question 3

Which of the following has NOT been identified as a problem with the old definition of fair value?

A)The word willing is not always ideal.
B)The word exchange is unclear.
C)The word settle is potentially misleading.
D)None of the above,i.e.they are all criticisms.

Answer 3

D

Question 4

Where there is a difference between fair value at initial recognition and cost,assuming no other standard prohibits it,the entity should?

A)Immediately adjust the value and recognise profit or loss.
B)Ignore the difference as there should be no day one gain or loss.
C)Amortise the difference over the useful life of the item.
D)Pay more or less for the item to make the figures equal.

Question 5

AASB 13 Fair Value Accounting has an effective date of:

A)January 2013.
B)July 2005.
C)July 2011.
D)January 2015.

Question 6

Which of the following is not part of the definition of fair value under AAASB 13?

A)Knowledgeable and willing parties.
B)Price received to sell an asset.
C)Price paid to sell a liability.
D)At measurement date.

Question 7

Why does the new definition focus on an exit price when valuing and asset or liability?

A)It introduces the concept of an external party into the transaction.
B)It focuses on the current value.
C)It is specific to the item being considered.
D)All of the above.

Question 8

Which of the following is NOT a transaction cost that should be considered in the calculation of fair value?

A)Costs associated with marketing the item.
B)Transport costs.
C)Agent's selling fees.
D)None of the above,i.e.they are all transaction costs.

Question 9

Which of the following information must be provided in the financial report about level 3 fair valuations?

A)Quantitative information on the inputs used in the model.
B)A description of the valuation technique used.
C)If the asset is not being used for its highest and best use why this is the case.
D)All of the above.

Question 10

When valuing non-financial assets which use for the asset should be considered?

A)The asset's expected use.
B)The asset's highest and best use.
C)The asset's current use.
D)None of the above.

Question 11

Traditionally what measurement technique has been most commonly used:

A)Replacement cost.
B)Modified historical cost.
C)Fair value.
D)Sales value.

Question 12

Fair value accounting:

A)Appears in many accounting standards.
B)Is a new concept.
C)Is currently rare in accounting standards.
D)Is simply a refinement to the definition of historic cost.

Question 13

When fair valuing a motor vehicle which of the following is least likely to be important?

A)Colour.
B)Age.
C)Make and model.
D)Kilometres travelled.

Question 14

Which part of the asset definition supports the use of fair value accounting?

A)Future economic benefit.
B)Control.
C)Relevance and reliability.
D)Past transaction.

Question 15

Which of the following would NOT indicate that market is inactive?

A)The bid-ask spread is narrow.
B)Little information is publicly available.
C)Price quotations don't reflect current information.
D)Indices are demonstrably uncorrelated with recent indications of fair valuation.

Question 16

Which two economic concepts are fundamental to the relevance of fair values to accounting?
i)The Efficient Markets Hypothesis
Ii)Supply and Demand
Iii)Economic Rationalism
Iv)Marginal Utility

A)i.& iii.
B)i.& ii.
C)ii.& iv.
D)iii.& iv.

Question 17

IFRS 13 is considered:

A)To be an evolutionary standard.
B)To clarify our current use of fair value.
C)To be a revolutionary standard.
D)To be a regression from previous practice.

Question 18

Which of the following would most likely be valued using a level 2 valuation?

A)Shares.
B)Gold.
C)A building.
D)A business unit.

Question 19

When fair valuing a liability which factor should NOT be considered?

A)Expectations of the market about fulfilling the obligation.
B)Non-performance risk.
C)The fair value of the corresponding asset.
D)None of the above,i.e.they are all factors to consider.

Question 20

Which of the following is not an acceptable valuation technique?

A)The expert evaluation approach.
B)The income approach.
C)The cost approach.
D)None of the above,i.e.they are all acceptable valuation techniques.