Deck 10: Fair Value Accounting

Question 1

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

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

Answer 1

C

Question 2

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

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

Answer 2

C

Question 3

Traditionally what measurement technique has been most commonly used

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

Answer 3

A

Question 4

Which of the following is not an acceptable valuation technique

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

Question 5

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

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

Question 6

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

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

Question 7

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

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

Question 8

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

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

Question 9

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

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

Question 10

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

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

Question 11

IFRS 13 is considered

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

Question 12

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

Question 13

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

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

Question 14

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

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

Question 15

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

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

Question 16

AASB 13 Fair Value Accounting has an effective date of:

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

Question 17

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

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

Question 18

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

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

Question 19

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

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

Question 20

Fair value accounting:

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