Question

FASB ASC 2?1?Use of Present Value

SFAC No. 7 provides a framework for using future cash flows as the basis for an accounting measurement. Find, cite, and copy the FASB ASC guidance on using present value measurements.

Answer 1

The following methods and assumptions were used to estimate the fair value of

each class of financial instruments for which it is practicable to estimate that

value:

Cash and short-term investments. For those short-term instruments, the

carrying amount is a reasonable estimate of fair value.

Investment securities and trading account assets. For securities and

derivative instruments held for trading purposes

interest rate futures, options, interest rate swaps, securities sold not owned,

caps and floors, foreign currency contracts, and forward contracts) and

marketable equity securities held for investment purposes, fair values are

based on quoted market prices or dealer quotes. For other securities held as

investments, fair value equals quoted market price, if available. If a quoted

market price is not available, fair value is estimated using quoted market

prices for similar securities.

Loan receivables. For certain homogeneous categories of loans, such as

some residential mortgages, credit card receivables, and other consumer

loans, fair value is estimated using the quoted market prices for securities

backed by similar loans, adjusted for differences in loan characteristics. The

fair value of other types of loans is estimated by discounting the future cash

flows using the current rates at which similar loans would be made to

borrowers with similar credit ratings and for the same remaining maturities.

Deposit liabilities. The fair value of demand deposits, savings accounts, and

certain money market deposits is the amount payable on demand at the

reporting date. The fair value of fixed-maturity certificates of deposit is

estimated using the rates currently offered for deposits of similar remaining

maturities.

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