Question 1

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

Accepted Answer

C

Question 2

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.

Accepted Answer

When measuring the fair value of an equity instrument, it is assumed that the market participant transferee will take on the rights and responsibilities associated with the instrument (A), the instrument would remain outstanding (C), and the instrument would not be cancelled or otherwise extinguished on the measurement date (D). However, it is not assumed that an entity's own equity instruments are transferred to a market participant at transfer date (B).

Question 3

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.

Accepted Answer

The IASB has not issued a standard mandating the use of fair value for all non-financial assets, therefore this is not one of the key reasons given for the issuance of the standard on fair value measurement.

Question 4

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

Accepted Answer

When measuring the fair value of a liability, it is assumed that the liability will be settled by the market participant, meaning that it will be settled in an orderly transaction between market participants, not necessarily with the holder or counterparty on the measurement date.

Question 5

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

Accepted Answer

When a liability is held as a corresponding asset by another entity, the fair value of the liability can be determined by measuring the fair value of the corresponding asset. This is because the value of the liability is directly related to the value of the asset that is held as collateral, and therefore the fair value of the liability can be inferred from the fair value of the asset. The other choices (A, B, and D) are not applicable in this situation.

Question 6

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

Accepted Answer

The answer of Valuation techniques that convert future amounts to...

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.

Accepted Answer

The two most common measures used in Accounting Standards are cost and fair value.

Question 8

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.

Accepted Answer

The answer of Where a market has both a bid...

Question 9

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 (eg a forced liquidation or distress sale).

Accepted Answer

According to AASB 13, fair value is defined as "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." Choice A is similar but does not include the term "orderly transaction." Choice C does not include the term "in an orderly transaction between market participants at the measurement date." Choice D describes a specific type of fair value transaction but is not the general definition of fair value.

Question 10

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.

Accepted Answer

The answer of Which of the following is not an...

Question 11

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

Accepted Answer

Quantitative information about all unobservable inputs used in the fair value measurement is not required under AASB 13. However, disclosure of the valuation techniques used, the inputs used, and the level of the fair value hierarchy within which the fair value measurements are categorised are required.

Question 12

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

Accepted Answer

The answer of Which of the following documents issued alongside...

Question 13

Which of the following steps in 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.

Accepted Answer

The answer of Which of the following steps in not...

Question 14

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

Accepted Answer

The fair value of an asset is based on its highest and best use, which refers to the use of the asset that maximizes its value. This may not necessarily be its current use or proposed use, but the use that generates the highest potential economic benefits. Value in use refers to the present value of the future cash flows the asset is expected to generate while in use. Therefore, while important, it is not the sole determinant of fair value.

Question 15

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.

Accepted Answer

The fair value of an entity's own equity instruments needs to be determined when it issues its own equity instruments in exchange for a business in a business combination. This is because the fair value of the equity instruments issued will affect the determination of the fair value of the consideration given for the business being acquired.

Question 16

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

Accepted Answer

Unobservable inputs are inputs that are not based on observable market data but rather on management assumptions, internal models, or estimates. These inputs are classified as Level 3 inputs under the fair value hierarchy. Therefore, the best choice is C.

Question 17

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

Accepted Answer

The answer of Which of the following is not a...

Question 18

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

Accepted Answer

The principal market is the market with the greatest volume and level of activity for the asset or liability, making it the most representative of fair value. This market is considered to be the most relevant and reliable source of pricing information. The other options (active market, liquid market, and most advantageous market) are not specific or accurate enough to describe the market with the highest volume and level of activity for the asset or liability.

Question 19

At which date is fair value determined?
A) the measurement date
B) the settlement date
C) the transaction date
D) the exchange date

Accepted Answer

Fair value is determined on the measurement date. This is the date at which the assets, liabilities, or instruments are measured at their fair value using standard methodologies and techniques. The settlement date, transaction date, and exchange date may also be relevant for accounting and valuation purposes but do not determine fair value.

Question 20

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

Accepted Answer

According to the given conditions, a fair value can be offset and determined on the net position if the entity holds a net exposure position and manages the group of financial assets and liabilities on a net exposure basis. Additionally, they must have a documented risk management strategy in place to ensure orderly market transactions. Thus, the correct choices are III and IV.

Quiz 4: Fair Value Measurement

Trademarks would be measured primarily using which type of inputs?

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

Which of the following is not one of the key reasons given by the IASB for issuing a standard on fair value measurement?

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

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

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:

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

Where a market has both a bid and an ask process, the price used in measuring fair value is:

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

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

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

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

Which of the following steps in not relevant when valuing liabilities?

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

In which circumstance will it be necessary to determine the fair value of an entity's own equity instruments?

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

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

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

At which date is fair value determined?