Deck 3: Fair Value Measurement

Question 1

Which of the following is not a valuation technique prescribed by AASB 13:

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

Answer 1

A

Question 2

Which of the following steps is not relevant when valuing liabilities:

A) The particular liability that is the subject of the measurement.
B) The valuation premise that is appropriate for the measurement.
C) The principal (or most advantageous) market for the liability.
D) The valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value hierarchy within which the inputs are categorised.

Answer 2

B

Question 3

Valuation techniques that convert future amounts to a single current amount and determines the fair value on the basis of the value indicated by current market expectations about those future amounts is an example of:

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

Answer 3

B

Question 4

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 non-financial assets.
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 5

When measuring the fair value of a liability, which of the following is assumed:

A) The liability is settled by the holder.
B) The liability will be settled by the market participant.
C) The liability will not be settled.
D) The liability is settled with the counterparty on measurement date.

Question 6

Where a market has both a bid and an ask process, the price 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 7

Which are the two most common measures used in Accounting Standards?

A) Fair value less costs to sell and cost.
B) Value in use and cost.
C) Cost and fair value.
D) Net realisable value and fair value.

Question 8

Which of the following documents issued alongside AASB 13 do not form an integral part of the standard:
I Basis for Conclusions
II Illustrative Examples
III Appendix A: Defined terms
IV Appendix B: Application guidance

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

Question 9

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 listing.
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 there is a change in the shareholding of the entity.

Question 10

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 the 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 11

Which of the following is not assumed when measuring the fair value of an equity instrument:

A) The market participant transferee will take on the rights and responsibilities associated with the instrument.
B) An entity's own equity instruments are transferred to a market participant at transfer date.
C) An entity's own equity instrument would remain outstanding.
D) The instrument would not be cancelled or otherwise extinguished on the measurement date.

Question 12

Which of the following disclosures are not required under AASB 13:

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 13

Unobservable inputs for the asset or liability are an example of:

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

Question 14

Which of the following is the definition of fair value per AASB 13:

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).

Question 15

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

A) A financial forecast of cash flow or earnings.
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 16

Where a liability is held as a corresponding asset by another entity the fair value of the liability is determined by:

A) applying a present value technique to measure the liability.
B) applying the cost approach to valuing the liability.
C) measuring the fair value of the corresponding asset.
D) determining the amount required to settle the present obligation.

Question 17

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 18

At which date is fair value determined?

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

Question 19

Trademarks would be measured primarily using which type of inputs?

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

Question 20

When determining the fair value of an asset its fair value is based on its:

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

Question 21

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

A) transfer
B) settlement
C) entry
D) exit

Question 22

Which of the following is the definition of exit price per AASB 13:

A) 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).
B) The amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
C) 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.
D) The price that would be received to sell an asset or paid to transfer a liability.

Question 23

Which of the following is an indication of an active market:

A) There are few recent transactions.
B) Price quotations vary substantially over time.
C) Price quotations vary substantially among market-makers.
D) Price quotations are based on current market information.

Question 24

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date are an example of:

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

Question 25

Which of the following disclosures are required under AASB 13:

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

Question 26

Non-performance risk refers to the risk that:

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

Question 27

Which of the following is not a characteristic of a market participant under AASB 13:

A) Buyers and sellers that are able to enter into a transaction for the asset or liability.
B) Buyers and sellers that are willing to enter into a transaction for the asset or liability.
C) Buyers and sellers that are dependent on each other.
D) Buyers and sellers that are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information.

Question 28

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

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

Question 29

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) the party who intends to repurchase the instrument.
D) a market participant who holds the instrument as an asset.