Inputs based on bid and ask prices.= Based on market prices where there are both bid prices — the price a dealer is willing to pay — andask prices — the price a dealer is willing to sell. he price within a bid–ask spread that is most representative of fair value should be used to measure fair value. Paragraph 71 notes that mid-marketpricing (that is, using the mid-point in the bid–ask spread), or another pricing convention that is used by market participants, may be used as a practical expedient.
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Fair value hierarchy – prioritizing inputs.Four important points critical to understanding the uses of these inputs are:1.The inputs are prioritized into three levels; Level 1 – Level 2 – Level 3.2.Fair value hierarchy gives the highest priority to quoted market prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.3.Where observable inputs are used, they must be relevant observable inputs.4.The availability of inputs and their relative subjectivity potentially affects the selection of the valuation technique; however, the fair value hierarchy prioritises the inputs to the valuation techniques, not the techniques themselves.Level 1 inputs = Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.Level 2 inputs = any inputs, other than Level 1 inputs, that are directly or indirectly observable. These inputs, like Level 1 inputs, are observable. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets quoted prices for identical or similar assets or liabilities in markets that arenot active inputs, other than quoted prices, that are observable for the asset or liability, such as interest rates and yield curves inputs that are derived from, or corroborated, by observable market data by correlation or other means.Level 3 inputs = unobservable inputs, data used may be that of the entity itself, which may be adjusted for factors that market participants would build into the valuation, or to eliminate the effect of variables that are specific to this entity, but not relevant to other market participants. E.g.: Cash-generating unit (a financial forecast of cash flow or earnings based on the entity's own data), Trademark (to measure the expected royalty rate that could be obtained by allowing other entities to use the trademark to produce the products covered by the trademark), accounts receivable(to measure the asset based upon the amount expected to be recovered based upon the entity's historical record of recoverability of accounts receivable).
3.4 Application to non-financial assets.The fair value of a non-financial asset must take into consideration the highest and best use of the asset from a market participant perspective. The highest and best use determines the valuation premise.
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