E2 Fair value and measurement bases

Written by Saad Rahman (ACCA)

ACCA · New at Expertise level · 8 questions

Name: ____________________ Date: ____________

Fair value under IFRS 13 is best described as:
- A The cost of buying the asset
- B The carrying amount less depreciation
- C The price to sell an asset or transfer a liability in an orderly transaction between market participants
- D The price in the entity's own best case
Which inputs are Level 1 in the fair value hierarchy?
- A Historical costs
- B Quoted prices in active markets for identical items
- C Observable inputs for similar items
- D The entity's own assumptions
A valuation uses the entity's own assumptions because no market data is available. Which level is it?
- A Level 2
- B Level 1
- C Level 3
- D It is not fair value
Are transaction costs deducted when measuring fair value?
- A No, fair value is not adjusted for transaction costs
- B Yes, for liabilities only
- C Yes, always
- D Only for financial assets
For a non-financial asset, which use does fair value assume?
- A The use the owner prefers
- B The current use only
- C The highest and best use for a market participant
- D The cheapest use
Which is an advantage of historical cost?
- A It needs no judgement
- B It adjusts for inflation
- C It is objective and verifiable
- D It always reflects current values
In the hierarchy, a fair value measurement uses one Level 3 input that is significant. What is the classification of the whole measurement?
- A Level 2
- B It depends on the largest input
- C Level 3
- D Level 1
Which is a disadvantage of current value measurement compared with historical cost?
- A It cannot be audited at all
- B It ignores market prices
- C It can be less reliable and costlier to prepare
- D It is not relevant

Answer key

1. C, 2. B, 3. C, 4. A, 5. C, 6. C, 7. C, 8. C

It is an exit price at the measurement date.
Level 2 inputs are other observable inputs and Level 3 inputs are unobservable.
Level 3 inputs are unobservable.
Costs of buying or selling are not part of the exit price.
It must be physically possible, legally permissible and financially feasible.
Current values give more relevance but less reliability.
It takes the level of the lowest input that is significant.
It needs estimates and judgement.