Deck 3: Fair Value Measurement

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.

Answer 1

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.

Answer 2

A

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.

Answer 3

A

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

Question 21

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

A) the average of the bid-ask prices over a 3 month period.
B) the most representative price for the transaction.
C) the ask price.
D) the bid price.

Question 22

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

A) Quantitative information about all unobservable inputs used in the fair value measurement.
B) The valuation techniques used to measure fair value.
C) The fair value measurement for each class of asset and liability at the end of the reporting period.
D) The input level of the fair value hierarchy within which the fair value measurements are categorised.

Question 23

In measuring an equity instrument at fair value the objective is to estimate an exit price at measurement date from the perspective of:

A) the entity issuing the equity instrument.
B) the party planning to repurchase the instrument.
C) the party to whom the instrument will be transferred.
D) a market participant who holds the instrument as an asset.

Question 24

Which of the following disclosures are required under AASB 13:

A) The valuation techniques used to measure fair value.
B) Non-recurring fair value measurements.
C) Changes in the inputs used to measure fair value.
D) All of the options are correct.

Question 25

Which of the following is an example of a liability where there is no corresponding asset?

A) A debenture issued by a listed company.
B) A mortgage.
C) A provision for warranties.
D) A provision for decommissioning.

Question 26

The fair value of an entity's own equity instruments will be determined under which of the following circumstances?

A) Where the entity participates in a share buy-back.
B) Where the entity is preparing for listing.
C) Where the entity undertakes a business combination and issues its own equity instruments in exchange for a business.
D) Where there is a major change in the shareholding of the entity.

Question 27

The fair value of an equity instrument is based on determining a/an _________ price which may relate to the price paid for an entity to repurchase its shares.

A) entry
B) exit
C) transfer
D) settlement

Question 28

An entity holding both financial assets and liabilities is allowed to offset and determine fair value on the net position as long as: I the entity holds a net short position
II the entity holds a net long position
III the entity has a documented risk management strategy
IV the entity manages the group of net financial assets and liabilities on a net exposure basis

A) I and II.
B) I and III.
C) II and IV.
D) III and IV.

Question 29

The following assumptions are made when measuring the fair value of an equity instrument except for:

A) The market participant transferee will take on the rights and responsibilities associated with the instrument.
B) An entity's own equity instrument would remain outstanding.
C) The instrument would not be cancelled or otherwise extinguished on the measurement date.
D) An entity's own equity instruments are transferred to a market participant at transfer date.