Question 1

In the general case where acquisition and disposal costs are not nil; A).NRV = Fair value B)NRV = current replacement cost C)NRV > fair value > current replacement cost D)NRV < fair value < current replacement cost

Accepted Answer

When acquisition and disposal costs are not nil, NRV will be lower than fair value and current replacement cost, as NRV is determined by subtracting the estimated costs of completion, disposal, and selling from the estimated selling price. Therefore, option D is the best choice.

Question 2

IFRS 13 imposes the measurement of fair value on entities.

Accepted Answer

IFRS 13 provides guidance on how to measure fair value when it is required or permitted by other IFRS standards, but it does not impose the measurement of fair value itself.

Question 3

Fair value is a market based exit price.

Accepted Answer

Fair value is 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. It is a market-based exit price.

Question 4

Under IFRS the price in the principal or most advantageous market price may be adjusted for transactions costs.

Accepted Answer

Under IFRS, the fair value measurement assumes that the asset or liability is exchanged in the principal market or, in the absence of a principal market, the most advantageous market. The price used should not be adjusted for transaction costs, although transport costs may be considered if location is a characteristic of the asset.

Question 5

The IASB insists that fair value is not an entity based value.

Accepted Answer

The IASB defines fair value as a market-based measurement and stresses that it is not an entity-specific value. Fair value is based on the assumptions that market participants would use when pricing an asset or a liability, regardless of the entity that owns it. Therefore, fair value is a market-based value rather than entity-based.

Question 6

Until 2011,the FASB definition of fair value was different from the IASB valuation in that it was;&#10;A)explicitly based solely on current replacement cost.&#10;B)explicitly based solely on net realisable value.&#10;C)explicitly based on an exit concept.&#10;D)explicitly based only on deprival value.

Accepted Answer

Until 2011, the FASB definition of fair value was explicitly based on an exit concept, which meant that fair value was determined based on 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. In contrast, the IASB's definition of fair value did not explicitly require the use of an exit concept.

Question 7

IFRS 13 seeks to mitigate the problems associated with measurement under level 3 of the hierarchy by;&#10;A)means of estimation&#10;B)means of disclosure&#10;C)means of reference to indices&#10;D)by means of reference to averages

Accepted Answer

IFRS 13 seeks to mitigate the problems associated with measurement under level 3 of the hierarchy by means of disclosure, providing more information about the inputs and assumptions used in the valuation, as well as the extent to which unobservable inputs were used. This increases the transparency and comparability of the financial statements. Means of estimation (A) are already used in the valuation of level 3 assets, while reference to indices (C) and averages (D) are not specific approaches prescribed by IFRS 13 for mitigating the problems associated with level 3 measurements.

Question 8

Which of the following is NOT a recognised observable input in the calculation of fair value?&#10;A)market approach&#10;B)theoretical approach&#10;C)cost approach&#10;D)income approach

Accepted Answer

The theoretical approach is not recognized as an observable input in the calculation of fair value. Observable inputs typically include market data and other factors that can be directly observed or verified, such as the market, cost, and income approaches.

Question 9

Which of the following is NOT a factor in 'Highest best use'?&#10;A)physically possible&#10;B)financially feasible&#10;C)legally permissible&#10;D)economically sound.

Accepted Answer

The concept of "Highest and Best Use" in real estate and appraisal refers to the most probable use of a property that is legally permissible, physically possible, financially feasible, and maximally productive. "Economically sound" is not a standard term used in defining the criteria for highest and best use.

Question 10

IFRS 13 specifies both how and when fair value should be measured and disclosed.

Accepted Answer

IFRS 13 specifies how fair value should be measured and disclosed, but it does not specify when an asset or liability should be measured at fair value.

Deck 8: Fair Values