Question

Briefly summarize, then explain the significance of par. 15-1 (scope) of ASC 820-10 (Fair Value Measurement).

Answer 1

Fair value management:

Definition of fair value

1. According to ASC 820-10-20.It defines fair value measurement means “Fair value is 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.”
2. it is applied in all aspect which needed fair value measurement.According to ASC 820 the fair value measurement based on exchange price notion.it is followed in both initial and subsequent in fair value measurement.
3. Fair value is the price to sell the asset and transfer a libility for that represents an exit price not an entry price.
4. The objective of an exit price of a fair value measurement applies regardless of the reporting entity’s purpose and ability to sell the asset or transfer the liability at the measurement date.
5. Fair value is a market-based measurement, it is not an entity-specific measurement,which is determined based on expectation market participants would consider in pricing the asset or liability.

Objectives

1. The objective of a fair value measurement is to determine the price at which an orderly transaction would take place between market participants under the market conditions that exist at the measurement date.
2. The primary goal of ASC 820 fair value of measurement is to increase the consistency and comparability of fair value measurements used in financial reporting. ASC 820 provides a common objective whenever US GAAP needs a fair value measurement, regardless the type of asset or liability being measured.

Significance of 15-1 of ASC 820 fair value measurement:

1. It's states that the important of fair value measurements or disclosures about fair value measurements which like fair value less cost to sell.
2. To accounting principles that address fair value measurements for purposes of lease classification or measurement in accordance with Topic 840. This scope exception does not apply to assets acquired and liabilities assumed in a business combination or an acquisition by a not-for-profit entity that are required to be measured at fair value in accordance with Topic 805, regardless of whether those assets and liabilities are related to leases.
3. A fair value measurement does not consider management’s intent to sell the asset or transfer the liability at the measurement date. Instead, it represents a market-based measurement that contemplates a hypothetical transaction between market participants at the measurement date.