Question 1

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, the instrument would not be cancelled or otherwise extinguished on the measurement date, and an entity's own equity instrument would remain outstanding. However, it is not assumed that an entity's own equity instruments are transferred to a market participant at transfer date.

Question 2

Which of the following disclosures are not required under IFRS 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 IFRS 13. However, the valuation techniques used to measure fair value, the inputs used to measure fair value, and the level of the fair value hierarchy within which the fair value measurements are categorised are all required disclosures under IFRS 13.

Question 3

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 that would result in the highest value for the asset in the market. This takes into consideration all possible uses of the asset, even if the current or proposed use is different, in order to determine its most valuable and profitable use.

Question 4

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 which is the specific point in time when the asset or liability is measured at its fair value. The settlement date is the date when the transaction is fully completed and the funds are transferred. The transaction date refers to the date when the contractual agreement is made. The exchange date refers to the date when the exchange of goods or services occurs.

Question 5

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 6

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

The answer of Trademarks would be measured primarily using which...

Question 7

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 refers to the market with the greatest volume and level of activity for the asset or liability, and is the most appropriate reference point for fair value measurement. It is where the asset or liability would be exchanged most frequently, which means that it is the market in which the asset or liability is most actively traded and therefore the most reliable for determining fair value. The other options (A, C, and D) do not accurately capture the concept of the principal market.

Question 8

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 referred to as Level 3 inputs, which are inputs that are not based on observable market data, but rather on management's own assumptions and estimates. These inputs require the most judgement and can be the most subjective. Level 1 inputs are based on quoted prices in active markets, while Level 2 inputs are based on observable market data other than quoted prices (e.g. benchmark interest rates or yield curves). Level 4 inputs do not exist.

Question 9

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 10

Which of the following is not a valuation technique prescribed by IFRS 13?
A) the fair value approach
B) the income approach
C) the cost approach
D) the market approach

Accepted Answer

IFRS 13 prescribes three valuation techniques: the income approach, the cost approach, and the market approach. The "fair value approach" is not a separate valuation technique under IFRS 13; rather, fair value is the objective that these techniques aim to measure.

Question 11

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

In order to offset and determine fair value on the net position, the entity must have a documented risk management strategy and manage the group of net financial assets and liabilities on a net exposure basis. Therefore, options III and IV are required. Option I or II (holding a net long or short position) is not relevant for this determination. Option V (conducting transactions in an orderly market) is not required for determining fair value using offsetting.

Question 12

Which of the following documents issued alongside IFRS 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 Basis for Conclusions and Illustrative Examples issued alongside IFRS 13 do not form an integral part of the standard. These documents provide additional context and examples to help understand and implement the standard but are not mandatory components of the standard itself.

Question 13

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 14

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, which means the fair value reflects the price that a willing buyer and seller would agree upon in an active market. Choice A assumes that the liability will be settled by the holder, which may not reflect the fair value if the holder has different circumstances or motivations from the market participant. Choice C assumes that the liability will not be settled, which may not reflect the economic reality if the liability has to be settled in the future. Choice D assumes a specific counterparty, which may not reflect the fair value if the counterparty's creditworthiness, relationship, or other factors are not relevant to the fair value measurement.

Question 15

Which of the following is the definition of fair value per IFRS 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

Fair value per IFRS 13 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."

Question 16

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 did not issue a standard on fair value measurement to require the use of fair value when accounting for all non-financial assets. Rather, the standard provides guidance on how to measure fair value when it is required or permitted under IFRSs.

Question 17

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 18

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

It is necessary to determine the fair value of an entity's own equity instruments in a business combination when the entity issues its own equity instruments in exchange for a business. In other circumstances such as preparing for listing, share buy-back or change in shareholding, fair value determination may not be necessary for the entity's own equity instruments.

Question 19

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 20

Which of the following does Whittington (2008) see as a main feature of the fair value view?
A) Stewardship, defined as accountability to present shareholders, is a distinct objective, ranking equally with decision usefulness.
B) Reliability is less important and is better replaced by representational faithfulness, which implies a greater concern for capturing economic substance, and less with statistical accuracy.
C) Present shareholders of the holding company have a special status as users of financial statements.
D) Future cash flows may be endogenous: feedback from shareholders and markets in response to accounting reports may influence management decisions.

Accepted Answer

The answer of Which of the following does Whittington (2008)...

Quiz 3: Fair Value Measurement

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

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

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

At which date is fair value determined?

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

Trademarks would be measured primarily using which type of inputs?

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

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

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

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

Which of the following documents issued alongside IFRS 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

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:

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

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

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

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

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

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

Which of the following does Whittington (2008) see as a main feature of the fair value view?