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Codification Topic 820: Fair Value Measurements and Disclosures

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Codification Topic 820
Fair Value Measurements and Disclosures

Fair Value Measurements

SFAS N0. 157, September 2006
"Fair Value Measurements"

Fair Value is
the price an entity would receive when an asset is sold
or
the price an entity would pay when a liability is transferred.

Such transaction should be
an orderly transaction
between market participants
at the measurement date.

Valuation Techniques

Three approaches

      1. Market approach
         --> based on information from market transactions

     2. Income approach
        --> based on future income
         --> e.g., present value techniques

     3. Cost approach
         --> based on current replacement cost

Inputs to Valuation Techniques

   Three levels of inputs: Fair Value Hierarchy

      1. Level 1 inputs
          --> unadjusted quoted prices
                in active markets
                for identical assets or liabilities

      2. Level 2 inputs
          --> quoted prices
                for similar assets or liabilities
                in active markets
          --> quoted prices
                for identical or similar assets or liabilities
                in markets that are not active

      3. Level 3 inputs
          --> unobservable inputs
                for the asset or liability

Codification Topic 820
Fair Value Measurements and Disclosures

Subtopics of Codification Topic 820

820-10 Overall

Accounting Terms of Codification Topic 820-10

   Active market
   Brokered Market
   Cost approach
   Dealer market
   Discount rate adjustment technique
   Entry price
   Exchange market
   Exit price
   Expected cash flow
   Fair value
   Financial asset
   Financial liability
   General market risk
   Highest and best use
   Income approach
   Incremental direct costs
   Inputs
   Level 1 inputs
   Level 2 inputs
   Level 3 inputs
   Market approach
   Market participants
   Market-corroborated inputs
   Most advantageous market
   Nonperformance risk
   Observable inputs
   Obsolescence
   Orderly transaction
   Present value
   Principal market
   Principal-to-principal market
   Related parties
   Risk premium
   Systematic risk
   Transaction costs
   Unit of account
   Unobservable inputs
   Unsystematic risk