Question 1

AASB 13 defines exit price as:
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 price that would be received to sell an asset or paid to transfer a liability.
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 amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Accepted Answer

B

Question 2

When measuring the fair value of a liability, it is assumed that:
A) the liability will be settled by the market participant.
B) the liability will not be settled.
C) the liability will be settled by the holder.
D) the liability is settled with the counterparty on measurement date.

Accepted Answer

When measuring the fair value of a liability, it is assumed that it will be settled by the market participant. This means that the fair value assumes the liability will be paid off at the measurement date, and the price that would be paid for the liability in the market on that date is used as the fair value.

Question 3

The fair value of an asset is based on its:
A) highest and best use.
B) current use.
C) proposed use.
D) value in use.

Accepted Answer

The fair value of an asset is based on its highest and best use, which means the most profitable and feasible use of that asset. It is not based on its current or proposed use, or its value in use.

Question 4

The following are valuation techniques prescribed by AASB 13 except for:
A) The cost approach.
B) The income approach.
C) The market approach.
D) The fair value approach.

Accepted Answer

AASB 13 Fair Value Measurement prescribes the cost approach, the income approach, and the market approach as valuation techniques. The "fair value approach" is not a separate valuation technique under AASB 13; rather, it is the objective of using the prescribed techniques.

Question 5

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

Accepted Answer

Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date are considered Level 1 inputs because they are the most objective and reliable inputs available. Level 2 inputs include quoted prices for similar assets or liabilities in inactive markets, while Level 3 inputs are unobservable inputs that must be estimated using assumptions and models. Level 4 inputs are not recognized under US GAAP.

Question 6

Which type of input is the primary measurement basis for trademarks?
A) Level 1 inputs.
B) Level 2 inputs.
C) Level 3 inputs.
D) Level 4 inputs.

Accepted Answer

Trademarks are valued based on Level 3 inputs, which are unobservable inputs for the asset or liability that rely on the entity's own assumptions about what market participants would use in pricing the asset or liability. This is because there is often no observable market data (Level 1) or other directly or indirectly observable inputs (Level 2) for trademarks.

Question 7

Fair value is determined as:
A) the current exit price.
B) the current entry price.
C) a future entry price.
D) a future exit price.

Accepted Answer

Fair value is determined as the current exit price, which is the price at which an asset can be sold or liability can be settled, in an orderly transaction between market participants at the measurement date. It reflects the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, the appropriate discount rate, and any other factors relevant to pricing the asset or liability.

Question 8

The market with the greatest volume and level of activity for the asset or liability is defined as the:
A) most active market.
B) current market.
C) principal market.
D) most advantageous market.

Accepted Answer

The principal market is the market with the greatest volume and level of activity for the asset or liability.

Question 9

Which of the following statements relating to non-performance risk is incorrect?
A) The entity's own credit risk is included.
B) The holder of a corresponding asset will not fulfil the obligation.
C) The entity will not fulfil the obligation.
D) It applies to liabilities.

Accepted Answer

Non-performance risk refers to the risk that an entity will not fulfil its obligation, which includes the entity's own credit risk and applies to liabilities. The incorrect statement, B, suggests that it involves the risk of the holder of a corresponding asset not fulfilling their obligation, which misrepresents the concept of non-performance risk as it specifically pertains to the entity's own obligations.

Question 10

The two most common valuation measures used in Accounting Standards are:
A) Fair value less costs to sell and carrying amount.
B) Net realisable value and fair value.
C) Value in use and net realisable value.
D) Cost and fair value.

Accepted Answer

Cost and fair value are the two most common valuation measures used in accounting standards for measuring and reporting the value of assets and liabilities.

Question 11

All of the following statements are key reasons given by the IASB for issuing a standard on fair value measurement except for:
A) To require the use of fair value when accounting for all non-financial assets.
B) 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.
C) To clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly.
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.

Accepted Answer

The IASB did not issue a standard on fair value measurement to require the use of fair value when accounting for all non-financial assets. The other options are all key reasons given by the IASB for issuing a standard on fair value measurement.

Question 12

Valuation techniques that reflect the amount that would be required currently to replace the service capacity of an asset is an example of:
A) the fair value approach.
B) the income approach.
C) the cost approach.
D) the market approach.

Accepted Answer

The cost approach estimates the value of an asset by determining the cost to replace the service capacity or functionality of the asset. This approach is often used for valuing assets that are not frequently bought and sold in the market or have unique characteristics that make it difficult to use other valuation methods.

Question 13

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 related parties.
C) Buyers and sellers that are willing to enter into a transaction for the asset or liability.
D) Buyers and sellers that are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information.

Accepted Answer

AASB 13 specifically mentions that related parties may be considered market participants if they have the ability, willingness, and knowledge to enter into a transaction. Therefore, option B is not a characteristic of a market participant under AASB 13.

Question 14

Where a liability is held as a corresponding asset by another entity, the fair value of the liability is determined from the perspective of a market participant that:
A) applies a present value technique to measure the liability.
B) applies the cost approach to valuing the liability.
C) calculates the amount required to settle the present obligation.
D) holds the identical item as an asset at measurement date.

Accepted Answer

The fair value of a liability is determined from the perspective of a market participant that holds the identical item as an asset at the measurement date, ensuring consistency in valuation between the asset and liability.

Question 15

Which of the following steps is not relevant when measuring liabilities?
A) The particular liability that is the subject of the measurement.
B) The principal (or most advantageous) market for the liability.
C) The valuation premise that is appropriate for the measurement.
D) The valuation technique(s) appropriate for the measurement.

Accepted Answer

The valuation premise is typically relevant for measuring assets, not liabilities. Liabilities are measured based on the principal market and appropriate valuation techniques.

Question 16

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

Accepted Answer

The Basis for Conclusions and Illustrative Examples are not an integral part of the AASB 13 standard, but rather provide additional guidance and explanation for the application of the standard. Appendix A provides the defined terms used in the standard and Appendix B provides application guidance, both of which are integral parts of the standard.

Question 17

Appendix A of 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 paid to purchase an asset or transfer a liability.
C) 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).
D) 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.

Accepted Answer

Option D correctly defines fair value as the price at which an asset could be sold or liability transferred in an orderly transaction between market participants at the measurement date. Option A defines fair value as the amount at which an asset could be exchanged or liability settled between knowledgeable, willing parties in an arm’s length transaction, which is similar to option D but does not take into account market participants. Option B is incorrect because fair value is not the price that would be paid to purchase an asset or transfer a liability, but rather the price at which it could be sold or transferred. Option C is also incorrect because it describes an ideal transaction that is not always possible in practice, and fair value should be measured based on actual market conditions.

Question 18

The following are examples of an inactive market except for:
A) Price quotations vary substantially over time.
B) Price quotations vary substantially among market-makers.
C) Price quotations are based on current market information.
D) There are few recent transactions.

Accepted Answer

In an inactive market, price quotations often do not reflect current market information due to low activity levels, making choice C the exception as it implies active market conditions where prices are updated based on the latest information.

Question 19

Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly, are an example of:
A) a Level 1 input.
B) a Level 2 input.
C) a Level 3 input.
D) a Level 4 input.

Accepted Answer

Inputs that are observable for the asset or liability, either directly or indirectly, but are not quoted prices are considered Level 2 inputs. Level 1 inputs are quoted prices for identical assets or liabilities in active markets. Level 3 inputs are unobservable inputs. Level 4 inputs do not exist.

Question 20

Which of the following is not an example of a level 2 input?
A) Quoted prices for identical or similar assets or liabilities in markets that are not active.
B) Inputs such as interest rates and yield curves, volatilities, prepayment speeds, and credit risks.
C) Measuring accounts receivable based on the entity's historical records of recoverability.
D) Inputs that are derived from or corroborated by observable market data by correlation or other means.

Accepted Answer

Measuring accounts receivable based on the entity's historical records of recoverability is an example of a level 3 input, which is unobservable and requires more subjective judgement. The other answer choices are all examples of level 2 inputs, which are observable inputs that may not be directly available, but can be obtained from other sources or corroboration.

Quiz 3: Fair Value Measurement

AASB 13 defines exit price as:

When measuring the fair value of a liability, it is assumed that:

The fair value of an asset is based on its:

The following are valuation techniques prescribed by AASB 13 except for:

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

Which type of input is the primary measurement basis for trademarks?

Fair value is determined as:

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

Which of the following statements relating to non-performance risk is incorrect?

The two most common valuation measures used in Accounting Standards are:

All of the following statements are key reasons given by the IASB for issuing a standard on fair value measurement except for:

Valuation techniques that reflect the amount that would be required currently to replace the service capacity of an asset is an example of:

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

Where a liability is held as a corresponding asset by another entity, the fair value of the liability is determined from the perspective of a market participant that:

Which of the following steps is not relevant when measuring liabilities?

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

Appendix A of AASB 13 Fair Value Measurement defines fair value as:

The following are examples of an inactive market except for:

Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly, are an example of:

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