Testbank

to accompany

Applying
®
IFRS Standards 4e
Ruth Picker, Kerry Clark, John Dunn, David Kolitz, Gilad
Livne, Janice Loftus, Leo van der Tas

Prepared by
John Sweeting, Emma Holmes and
Elisabetta Barone
Test Bank to accompany Applying IFRS Standards 4e

John Wiley & Sons, Ltd 2016

© John Wiley & Sons, Ltd 2016 3.1

 Chapter 3: Fair value measurement

CHAPTER 3

Fair value measurement

Learning Objectives
3.1 Explain the need for an accounting standard on fair value measurement
3.2 Understand the key characteristics of the term ‘fair value’
3.3 Explain the steps in determining the fair value of non-financial assets
3.4 Understand how to measure the fair value of liabilities
3.5 Explain how to measure the fair value of an entity’s own equity instruments
3.6 Discuss issues relating to the measurement of the fair value of financial instruments
3.7 Prepare the disclosures required by IFRS 13 Fair Value Measurement
3.8 Discuss the issues associated with the measurement and use of fair values.

© John Wiley & Sons, Ltd 2016 3.2

Test Bank to accompany Applying IFRS Standards 4e

Multiple Choice Questions

1. Which of the following is not one of the key reasons given by the IASB for a standard on
fair value measurement?
Learning Objective 3.1 Explain the need for an accounting standard on fair value
measurement
a. to establish a single source of guidance for all fair value measurements required or
permitted by IFRSs to reduce complexity and improve consistency in their
application;
b. to clarify the definition of fair value and related guidance in order to communicate
the measurement objective more clearly;
*c. to require the use of fair value when accounting for all non-financial assets;
d. to enhance disclosures about fair value to enable users of financial statements to
assess the extent to which fair value is used and to inform them about the inputs
used to derive those fair values.

2. Which of the following documents issued alongside IFRS 13 do not form an integral part of
the standard?

I Basis for Conclusions

II Illustrative Examples
III Appendix A: Defined terms
IV Appendix B: Application guidance

Learning Objective 3.1 Explain the need for an accounting standard on fair value
measurement
*a. I and II;
b. II and III;
c. III and IV;
d. I and IV.

3. Which of the following is the definition of fair value per IFRS 13?
Learning Objective 3.2 Understand the key characteristics of the term ‘fair value’
a. The amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arm’s length transaction;
*b. The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date;
c. The price that would be received to sell an asset or paid to transfer a liability;
d. A transaction that assumes exposure to the market for a period before the
measurement date to allow for marketing activities that are usual and customary for
transactions involving such assets or liabilities; it is not a forced transaction (eg a
forced liquidation or distress sale).

© John Wiley & Sons, Ltd 2016 3.3

 Chapter 3: Fair value measurement

4. At which date is fair value determined?

Learning Objective 3.2 Understand the key characteristics of the term ‘fair value’
*a. the measurement date;
b. the settlement date;
c. the transaction date;
d. the exchange date.

5. When determining the fair value of an asset its fair value is based on its:
Learning Objective 3.2 Understand the key characteristics of the term ‘fair value’
a. Current use;
b. Proposed use;
*c. Highest and best use;
d. Value in use.

6. Which of the following is not a valuation technique prescribed by IFRS 13?

Learning Objective 3.3 Explain the steps in determining the fair value of non-financial
assets
*a. the fair value approach;
b. the income approach;
c. the cost approach;
d. the market approach.

7. The market with the greatest volume and level of activity for the asset or liability is defined
as the:
Learning Objective 3.3 Explain the steps in determining the fair value of non-financial
assets
a. active market;
*b. principal market;
c. liquid market;
d. most advantageous market.

8. Valuation techniques that convert future amounts to a single current amount and
determines the fair value on the basis of the value indicated by current market
expectations about those future amounts is an example of:
Learning Objective 3.3 Explain the steps in determining the fair value of non-financial
assets
a. the fair value approach;
*b. the income approach;
c. the cost approach;
d. the market approach.

© John Wiley & Sons, Ltd 2016 3.4

Test Bank to accompany Applying IFRS Standards 4e

9. Unobservable inputs for the asset or liability are an example of:

Learning Objective 3.3 Explain the steps in determining the fair value of non-financial
assets
a. a Level 1 input;
b. a Level 2 input;
*c. a Level 3 input;
d. a Level 4 input.

10. Which of the following is not an example of a level 2 input?

Learning Objective 3 Explain the steps in determining the fair value of non-financial assets
*a. a financial forecast of cash flow or earnings;
b. quoted prices for identical or similar assets or liabilities in markets that are not
active;
c. inputs other than quoted prices that are observable for the asset or liability, such as
interest rates and yield curves, volatilities, prepayment speeds, and credit risks;
d. inputs that are derived from or corroborated by observable market data by
correlation or other means.

11. Trademarks would be measured primarily using which type of inputs?

Learning Objective 3.3 Explain the steps in determining the fair value of non-financial
assets
a. Level 1 inputs;
b. Level 2 inputs;
*c. Level 3 inputs;
d. Level 4 inputs.

12. Which of the following steps in not relevant when valuing liabilities?
Learning Objective 3.4 Understand how to measure the fair value of liabilities
a. the particular liability that is the subject of the measurement;
*b. the valuation premise that is appropriate for the measurement;
c. the principal (or most advantageous) market for the liability;
d. the valuation technique(s) appropriate for the measurement, considering the
availability of data with which to develop inputs that represent the assumptions that
market participants would use when pricing the asset or liability and the level of the
fair value hierarchy within which the inputs are categorised.

13. When measuring the fair value of a liability, which of the following is assumed?
Learning Objective 3.4 Understand how to measure the fair value of liabilities
a. the liability is settled by the holder;
*b. the liability will be settled by the market participant;
c. the liability will not be settled;
d. the liability is settled with the counterparty on measurement date.

© John Wiley & Sons, Ltd 2016 3.5