Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 6. Fair Value (ASC 820)

SCOPE

ASC 820 was issued to establish a single, consistent, generally accepted accounting principles (GAAP) definition of fair value; provide uniform, consistent guidance on how to measure fair value, including the establishment of a hierarchical fair value measurement framework that classifies measurement inputs based on their level of market observability; and expand the information required to be provided to financial statement users about fair value measurements.

DEFINITION OF KEY TERMS

(in accordance with ASC 820)

Active market. A market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Bond. A debt instrument evidencing a transaction whereby a borrower (referred to as the bond's issuer) agrees to pay a sum of money at a designated future date plus periodic interest payments at the stated rate. The contract between the issuer and the bondholder (also known as the holder or investor) is referred to as an indenture. Bonds are used by commercial enterprises; municipalities; federal, state, and foreign governments; colleges and universities; hospitals; and other entities to finance a wide variety of activities or special projects.

Exit price. For valuing assets, the price that a reporting entity that holds the asset would hypothetically receive by selling it on the measurement date. For valuing liabilities, the price that a hypothetical marketplace participant would pay to transfer the ...