Deck 5: Fair Value Measurement

Question 1

Trademarks would be measured primarily using which level of inputs?

A)Level 1 inputs
B)Level 2 inputs
C)Level 3 inputs
D)Level 4 inputs

Answer 1

C

Question 2

According to AASB 13 Fair Value Measurement which of the following should first be used when measuring the corresponding asset for a liability?

A)An income approach
B)The quoted price of the asset in an active market
C)The quoted price for the asset in a market that is not active
D)A market approach

Answer 2

B

Question 3

AASB 13 Fair Value Measurement defines fair value as:

A)the amount for which an asset could be exchanged,or a liability settled,between knowledgeable,willing parties in an arm's length transaction.
B)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.
C)the price that would be received to sell an asset or paid to transfer a liability.
D)a transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (e.g.a forced liquidation or distress sale).

Answer 3

B

Question 4

Accounts receivable would be measured primarily using which level of inputs?

A)Level 1 inputs
B)Level 2 inputs
C)Level 3 inputs
D)Level 4 inputs

Question 5

Which of the following is an example of a liability where there is no corresponding asset?

A)A loan owing to a financial institution
B)A provision for warranties
C)A provision for decommissioning
D)A debenture issued by a listed company

Question 6

Which of the following is an example of an orderly transaction for the purposes of determining fair value?

A)The prices of goods sold in a liquidation or fire sale.
B)The prices of goods sold at sale prices.
C)The prices of goods sold to related parties such as directors.
D)The price of goods sold under normal trading conditions.

Question 7

The market with the greatest volume and level of activity for the asset or liability is defined as the:

A)active market.
B)principal market.
C)liquid market.
D)most advantageous market.

Question 8

Which of the following is not one of the key reasons given by the IASB for issuing a standard on fair value measurement?

A)To establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application.
B)To clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly.
C)To require the use of fair value when accounting for all assets and liabilities.
D)To enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values.

Question 9

Which of the following steps in not relevant when valuing liabilities?

A)The particular liability that is the subject of the measurement.
B)The highest and best use for the liability.
C)The principal (or most advantageous)market for the liability.
D)The valuation technique(s)appropriate for the measurement.

Question 10

When determining the fair value of an asset,its fair value is measured by considering its:

A)highest and current use.
B)proposed use.
C)highest and best use.
D)value in exchange.

Question 11

Inputs that are derived from or corroborated by observable market data by correlation or other means are an example of a:

A)Level 1 input.
B)Level 2 input.
C)Level 3 input.
D)Level 4 input.

Question 12

The objectives of AASB 13 Fair Value Measurement include which of the following?
I To require disclosures about fair value measurement.
II To require the use of fair value when measuring all assets and liabilities.
III To define fair value.
IV To set out in a single standard a framework for measuring fair value.

A)I,III and IV only
B)II and III only
C)III and IV only
D)I and IV only

Question 13

The fair value hierarchy prioritises inputs into how many levels?

A)One level
B)Two levels
C)Three levels
D)Four levels

Question 14

The date at which fair value is determined is known as the:

A)measurement date.
B)settlement date.
C)transaction date.
D)exchange date.

Question 15

A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis is a/an:

A)transaction market.
B)information market.
C)active market.
D)inactive market.

Question 16

The two most common measures for assets and liabilities used in AASB accounting standards are:

A)market value and cost.
B)cost and fair value.
C)current replacement cost and fair value.
D)fair value less costs to sell and cost.

Question 17

Which of the following is not an example of a level 2 input?

A)Quoted prices in active markets for identical assets or liabilities.
B)Quoted prices for identical or similar assets or liabilities in markets that are not active.
C)Inputs other than quoted prices that are observable for the asset or liability,such as interest rates and yield curves,volatilities,prepayment speeds and credit risks.
D)Inputs that are derived from or corroborated by observable market data by correlation or other means.

Question 18

Which of the following is not a valuation technique prescribed by AASB 13 Fair Value Measurement?

A)The balance sheet approach
B)The income approach
C)The cost approach
D)The market approach

Question 19

A valuation technique that reflects the amount that would be currently required to replace the service capacity of an asset is known as:

A)the fair value approach.
B)the income approach.
C)the cost approach.
D)the market approach.

Question 20

The price that would be received to sell an asset or paid to transfer a liability is referred as the:

A)exit price.
B)transfer price.
C)selling price.
D)settlement price.

Question 21

Fair value under AASB 13 Fair Value Measurement is defined as "the amount for which an asset could be exchanged,or a liability settled,between knowledgeable,willing parties in an arm's length transaction."

Question 22

To determine the fair value of the particular asset being measured one must consider such factors as the condition and location of the assets.

Question 23

In which circumstance will it be necessary to determine the fair value of an entity's own equity instruments?

A)Where the entity is preparing for an initial public offering of shares.
B)Where the entity undertakes a business combination and issues its own equity instruments in exchange for a business.
C)Where the entity undertakes a share buy-back.
D)Where the entity makes a right issue of shares to existing shareholders.

Question 24

Fair value is determined at the exchange date.

Question 25

Price per square metre for a building derived from observable market data is an example of a level 2 input.

Question 26

Fair value is measured by considering the highest and best use of the asset.

Question 27

Non-performance risk refers to the risk that:

A)a market participant will not fulfil an obligation.
B)the counterparty will not fill an obligation.
C)the holder of a corresponding asset will not fulfil an obligation.
D)the holder of the liability will not fulfil an obligation.

Question 28

Which of the following statements regarding measuring liabilities is incorrect?

A)The effects of non-performance risk must be taken into consideration in measuring the fair value of a liability.
B)Present value techniques may be very useful in the measurement of liabilities.
C)The effects of non-performance risk is not relevant to measuring the fair value of a liability.
D)The highest and best use does not apply in the measurement of the fair value of a liability.

Question 29

The price used to measure the fair value of an asset should be adjusted for transaction costs.

Question 30

In relation to financial assets and financial liabilities,the price a dealer is willing to pay is referred to as the:

A)ask price.
B)bid price.
C)issue price.
D)purchase price.

Question 31

One of the key reasons for issuing AASB 13 Fair Value Measurement was to establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application.

Question 32

According to AASB 13 Fair Value Measurement,an entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as:
I they hold a net long position.
II they hold a net short position.
III they have a documented risk management strategy.
IV they manage the group of net financial assets and liabilities on a net exposure basis.
V transactions are conducted in an orderly market.

A)I and III
B)II and IV
C)III and IV
D)II and V

Question 33

Which of the following disclosures are not required under AASB 13 Fair Value Measurement?

A)The valuation techniques used to measure fair value.
B)The inputs used to measure fair value.
C)The level of the fair value hierarchy within which the fair value measurements are categorised.
D)Quantitative information about all unobservable inputs used in the fair value measurement.

Question 34

AASB 13 Fair Value Measurement allows the use of which of the following as a practical expedient when measuring the fair value of financial instruments where there are both bid and ask prices?

A)The bid price
B)The ask price
C)The bid-ask spread
D)The mid-market price

Question 35

Which of the following does Whittington (2008)see as a main feature of the alternative view?

A)Stewardship,defined as accountability to present shareholders,is a distinct objective,ranking equally with decision usefulness.
B)Reliability is less important and is better replaced by representational faithfulness,which implies a greater concern for capturing economic substance,and less with statistical accuracy.
C)Relevance is the primary characteristic.
D)Accounting information needs ideally to reflect the future,not the past,so past transactions and events are only peripherally relevant.

Question 36

Inputs to valuation techniques can only be used if they are observable.

Question 37

In measuring an equity instrument at fair value,the objective is to estimate an exit price at measurement date from the perspective of:

A)the issuer of the equity instrument.
B)the party to whom the instrument will be transferred.
C)a market participant who holds the instrument as an asset.
D)the party who intends to repurchase the instrument.

Question 38

Where a foreign exchange dealer is willing to exchange one currency for another,the price that should be used in measuring fair value is:

A)the bid price.
B)the ask price.
C)the bid-ask spread.
D)the most representative price for the transaction.

Question 39

When determining fair value,the exchange transaction considered is a hypothetical one.

Question 40

The "principal market" as defined in AASB 13 Fair Value Measurement is the market that maximises the amount that could be received to sell the asset or minimises the amount that would be required to be paid to transfer the liability,after considering transactions costs and transportation costs.

Question 41

AASB 13 Fair Value Measurement does not apply to the measurement of equity instruments.

Question 42

AASB 13 Fair Value Measurement considers that the fair value of a liability is equal to the fair value of a properly defined corresponding asset.

Question 43

The use of the stand-alone valuation premise is appropriate when the market participant to whom the asset is being transferred would use the asset in conjunction with other assets.

Question 44

One of the key concerns surrounding the increased use of fair value is the reliability of the data.

Question 45

The fair value of an equity instrument is based on determining an entry price which may relate to the price paid for an entity to repurchase its shares.

Question 46

In the context of a liability,the fair value is the amount required to be paid to settle a liability.

Question 47

AASB 13 Fair Value Measurement allows the offsetting of financial assets and liabilities where the assets and liabilities are managed as a group.

Question 48

AASB 13 Fair Value Measurement does not prescribe any disclosures as these are contained in other accounting standards

Question 49

AASB 13 Fair Value Measurement states that the price within a bid-ask spread that is most representative of fair value should be used to measure fair value.

Question 50

When valuing a liability and a corresponding asset is not held by another entity,the fair value is typically determined by applying a present value technique.