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

Quizplus · 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.

Where a Liability Is Held as a Corresponding Asset by Another