Concept No7 - Concept No 7 Using Cash Flow Information and...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Concept No. 7 Using Cash Flow Information and Present Value in Accounting Measurements
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Definition of Fair Value The amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. It is a market price.
Image of page 2
EXAMPLE – Fair Value QUOTED MARKET PRICE OF MARKETABLE SECURITIES (E.G. IBM STOCK)
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Why Fair Value? Fair value provides the most complete and The most representationally faithful measurement of the economic characteristics of an asset or liability.
Image of page 4
Complete It is complete because marketplace participants apply all elements of a present value measurement in determining the amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Representationally faithful It is the most representationally faithful because it is consistent with its intension of measurement by capturing the economic difference among different sets of future cash flows so that it may most well inform the amount, timing and uncertainty of future cash flows.
Image of page 6
Economic difference among sets of future cash flows i. An asset with a fixed contractual cash flow of $10,000 due in 1 day. The cash flow is certain of receipt. ii. An asset with a fixed contractual cash flow of $10,000 due in 10 years. The cash flow is certain of receipt. iii. An asset with a fixed contractual cash flow of $10,000 due in 1 day. The amount that ultimately will be received is uncertain. It may be less than $10,000 but will not be more. iv. An asset with a fixed contractual cash flow of $10,000 due in 10 years. The amount that ultimately will be received is uncertain. It may be less than $10,000 but will not be more. v. An asset with an expected cash flow of $10,000 due in 10 years. The amount that ultimately will be received is uncertain, but it may be as high as $12,000, as low as $8,000, or some other amount within that range.
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Present Value to Estimate Fair Value Its objective is to estimate fair value.
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern