Question 1

The highest and best use concept values the asset based on the highest value that the market would place on the asset, considering all possible uses that are

Accepted Answer

C

Question 2

In order to measure fair value under IFRS13, an entity must determine

Accepted Answer

In order to measure fair value under IFRS13, an entity must consider all three factors: the item being measured and how it could be used, the market the item would be (or is) bought and sold in, and which fair value model is being used to value the item. Therefore, the correct answer is D, all of the above.

Question 3

Which of the following is an example of an item that would be measured under the current value measurement categorization?

Accepted Answer

Biological assets are typically measured at their current value, reflecting their fair value less costs to sell, as they often fluctuate in value due to changes in physical attributes or market conditions.

Question 4

Which of the following is not a category to measure financial statement elements?

Accepted Answer

Cash flow measures are not typically used as a category for measuring financial statement elements. The main categories are cost-based, hybrid, and current value measures.

Question 5

Use the following data to solve the following questions:
-Frontier Landscaping owns some equipment that is used in their operations. Management estimates that the equipment will last another three years and will generate the following future cash flows at the end of each year. $\begin{array}{llcc}
\text {Year 1}&\text {Year 2}&\text {Year 3}\
\hline \$ 4,000& \$ 6,000&\$ 7,000 
\end{array}$
 Assuming Frontier Landscaping's equipment has a carrying value of $16,000, how much of an impairment loss must Frontier record?

Accepted Answer

The answer of Use the following data to solve the...

Question 6

Use the following data to solve the following questions:
-Branson Company deposited $5,800 in an account paying 2.5% annual interest. How much simple interest would Branson earn in 3 years?

Accepted Answer

Simple interest can be calculated using the formula I = PRT, where I is the interest, P is the principal amount ($5,800), R is the annual interest rate (2.5% or 0.025), and T is the time in years (3). Thus, I = $5,800 * 0.025 * 3 = $435.

Question 7

Which of the following is an example of an item that would be measured under the hybrid measurement categorization?

Accepted Answer

Hybrid measurement is a combination of both historical cost and fair value measurement methods. Inventory measured at the lower of cost and net realizable value is an example of a hybrid measurement category. Investment properties and biological assets are both measured at fair value, while financial instruments carried at cost are measured at historical cost.

Question 8

Branson Company deposited $5,800 in an account paying 2.5% annual interest. How much interest-on-interest would Branson earn in 3 years?

Accepted Answer

Interest-on-interest = $5,800 x 0.025 x 0.025 x 3 = $11

Question 9

Level 1 inputs

Accepted Answer

Level 1 inputs are based on quoted prices in active markets for identical assets or liabilities, making them the most objective and reliable for fair value measurement.

Question 10

Inputs to income models include which of the following?

Accepted Answer

The answer of Inputs to income models include which of...

Question 11

Billow Company has issued a 3% bond that is payable in 5 years and has a face value of $100,000. The risk-adjusted market rate is 4%. Calculate the fair value of the bond.

Accepted Answer

The fair value of the bond is calculated using the present value of its future cash flows, which include the annual interest payments and the principal amount at maturity. The annual interest payment is 3% of $100,000, which equals $3,000. The present value of these interest payments, discounted at the market rate of 4% over 5 years, plus the present value of the principal amount ($100,000) discounted at the same rate over the same period, gives the fair value of the bond. The correct calculation results in a fair value of approximately $95,548.

Question 12

Fiddler Company has a loan balance of $853.02 and must make equal payments of $100 at the end of each of the next 10 months. What is the monthly rate of interest that Fiddler Company is paying?

Accepted Answer

The monthly payment of $100 over 10 months totals $1000, which is more than the loan balance of $853.02. This indicates that interest is being charged. Using the formula for the present value of an annuity, the monthly interest rate that equates the present value of the payments to the loan balance is approximately 3%.

Question 13

Helvetica Corporation is interested in leasing a piece of machinery that has a fair value of $150,000. The market rate for financing is 8% and Helvetica plans to lease the machinery for the next five years. Calculate the quarterly lease payments.

Accepted Answer

To calculate the quarterly lease payments, we use the formula for the present value of an annuity because lease payments are essentially an annuity. The formula is: $PMT = \frac{PV}{\frac{1 - (1 + r)^{-n}}{r}}$, where PMT is the payment per period, PV is the present value (or initial amount) of the loan/lease, r is the interest rate per period, and n is the total number of payments.Given:- PV = $150,000 (fair value of the machinery)- Annual interest rate = 8%, but since payments are quarterly, we divide this by 4 to get the quarterly rate: $r = \frac{8\%}{4} = 2\%$- The lease is for 5 years, with quarterly payments, so there are $5 \times 4 = 20$ payments in total.First, convert the interest rate to decimal form: $r = 2\% = 0.02$.Now, plug the values into the formula:$$PMT = \frac{150,000}{\frac{1 - (1 + 0.02)^{-20}}{0.02}}$$$$PMT = \frac{150,000}{\frac{1 - (1 + 0.02)^{-20}}{0.02}}$$$$PMT = \frac{150,000}{7.53608}$$$$PMT ≈ 9,174$$Therefore, the quarterly lease payments are approximately $9,174.

Question 14

Use the following data to solve the following questions:
-Frontier Landscaping owns some equipment that is used in their operations. Management estimates that the equipment will last another three years and will generate the following future cash flows at the end of each year. $\begin{array}{llcc}
\text {Year 1}&\text {Year 2}&\text {Year 3}\
\hline \$ 4,000& \$ 6,000&\$ 7,000 
\end{array}$
 Calculate the present value of each of these future cash flows given a 4% discount rate.

Accepted Answer

The present value (PV) of future cash flows is calculated using the formula: $ PV = \frac{FV}{(1 + r)^n} $. For each year, calculate the PV and sum them: Year 1: $ \frac{4000}{1.04^1} = 3846.15 $, Year 2: $ \frac{6000}{1.04^2} = 5555.56 $, Year 3: $ \frac{7000}{1.04^3} = 6235.92 $. Total PV = 3846.15 + 5555.56 + 6235.92 = 15,637.63, which rounds to $15,617.

Question 15

The cost model attempts to reflect the amount that would be required to

Accepted Answer

The cost model is used to reflect the amount required to replace the asset's service capacity. This includes costs associated with purchasing or constructing similar assets with similar capabilities.

Question 16

Under the traditional discounted cash flow approach,

Accepted Answer

The traditional discounted cash flow approach involves discounting the stream of contracted cash flows, taking into account the time value of money. This method is commonly used to value assets or projects that have predictable future cash flows. It is important to use an appropriate discount rate that reflects the risk of the investment. Therefore, the risk-free discount rate is not always used. This method is less effective when cash flows are uncertain or variable.

Question 17

A fair value measure under IFRS 13 is based on which view of fair value?

Accepted Answer

A fair value measure under IFRS 13 is based on the market participant view, which takes into account the assumptions that market participants would use when pricing an asset or a liability. It is not based on the shareholder view, fair value view, or unbiased view.

Question 18

Valuation premise does not refer to

Accepted Answer

The valuation premise does not refer to the actual use of an asset/liability, but rather to the assumptions made about how it will be used in order to determine its value.

Question 19

Use the following data to solve the following questions:
-Branson Company deposited $5,800 in an account paying 2.5% annual interest. How much compound interest would Branson earn in 3 years?

Accepted Answer

The compound interest can be calculated using the formula: A = P(1 + r/n)^(nt) - P, where P is the principal amount ($5,800), r is the annual interest rate (0.025), n is the number of times interest is compounded per year (1 for annually), and t is the number of years (3). The calculation gives $446 as the compound interest.

Question 20

Under the expected cash flow approach,

Accepted Answer

The expected cash flow approach deals with cash flow uncertainty by assigning probabilities to different cash flow scenarios, allowing for a more accurate reflection of potential outcomes.

Quiz 3: Measurement