Essay on Fair Value Case - 1940 Words

Case 11-2(b) Fair Value Disclosures Case 11-2(b) is an extension of Case 11-2(a). For this case, assume that the Case 11-2(a) facts remain, with the exception of the additional assumptions listed below for each security. As stated in Case 11-2(a), Family Finance Co. (FFC) accounts for its investments at fair value, with changes in fair value reflected either in earnings (for trading securities) or other comprehensive income (OCI) (for available-for-sale (AFS) securities). 1 Because FFC uses the interest rate swap in a cash-flow hedge, FFC measures the derivative at fair value, presenting the portion of the fair value change that effectively offsets cash flow variability on its corporate debt in OCI and the remainder in earnings.†¦show more content†¦Ã¢â‚¬ ¢ FFC executes IR swaps with various counterparties and accounts for its IR swap assets and liabilities on a gross basis on its balance sheet. Instrument 6 — Fuel Swap — Gasoline †¢ FFC classifies its fuel swap within Level 3 of the fair value hierarchy as of December 31, 2012. †¢ The fuel swap was the only derivative in FFC’s commodity derivatives portfolio. †¢ The fuel swap’s fair value at initial recognition (January 2, 2012) was $0. Furthermore, each of the four annual swaplets 2 had an inception value of $0. 2 A s waplet is akin to a swap with a single settlement. For example, an IR swap with a duration of two years that re-prices and settles every quarter can also be viewed as a sequential series of eight swaplets at inception (each swaplet is net settled as of the settlement date specified in the swap contract). The fair value measurement of an IR swap considers the expected cash flows of all unsettled swaplets as of the measurement date. C opyright 2009 Deloitte Development LLC All Rights Reserved. Case 11-2(b): Fair Value Disc losures †¢ Page 3 The first annual swaplet settled on December 31, 2012, resulting in a net cash payment to FFC of $100. Required: †¢ Using the case facts and the fair value amounts provided in the fair value data table below, prepare the annual quantitative disclosure tables required by ASC 820 as ofShow MoreRelatedUsefulness and Reliability of Information Provided By Corporations1474 Words   |  6 PagesTherefore, Statement of Financial Accounting Standards No. 157 standardizes the valuation and disclosure of fair value for assets and liabilities in order to achieve both usefulness and reliability. The reasoning for the hierarchy was due to the inconsistency in previous definitions and guidance (FASB, 1992). Introduction to Fair Value Hierarchy To begin, SFAS defines fair value as the value today of an asset or liability if it were sold or disposed in a transaction between third parties that areRead MoreNew Zealand Financial Accounting. Essay1522 Words   |  7 Pagesframework for measuring fair value in IFRS. This is based on a number of key concepts including unit of account; exit price; valuation premise; highest and best use; principal market; market participant assumptions and the fair value hierarchy. Fair value is an important measurement on the basis of financial reporting. It provides information about what an entity might realize if it sold an asset or might pay to transfer a liability. In recent years, the use of fair value as a measurement basis forRead MoreHistorical Development Of Fair Value Measurement1400 Words   |  6 PagesFair value measurement is one of the models which provide guidance on how entities should determine the fair value of financial instruments for reporting purposes. This paper discusse s the Financial Accounting Standards Board (FASB) Exposure Draft issued on December 3, 2015 which proposed amendments to Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements. 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Furthermore, this statement stat there is no market value in accounting where everything is based on management’s opinion. Moreover, using the related articles, how managers judge and manipulate the financial statement will be elaborated in the following. This paper will critically evaluate how accountantRead MoreThe principle of historical cost is still used in accounting when there is a large measure of agreement that it is inappropriate. Discuss.1226 Words   |  5 Pagesother valuation methods, due to word constraints I have focused primarily on Fair Value Accounting as an alternative to Historical Cost Accounting. Although Fair value accounting is a the oretically superior valuation methodology, there are several severe problems in its current application, due to lax regulations and ineffective methods of determining current values of non-current assets. These problems within Fair Value Accounting have ensured that most companies conservatively remain using HistoricalRead MoreConstructive Dividend Vs. Constructive Dividends1519 Words   |  7 Pagesof compensation with prior years, and the agreement between the corporation and the employees for the compensation paid, and others depending on the situation. The following court case illustrates the determination of reasonableness of compensation that the corporation paid to its shareholders and employees. In the case of Wechsler Co., Inc. v. Commissioner, TC Memo 2006-173, the Tax Court has to determine whether the salaries and bonuses the corporation (Ogden, Wechsler, and Krumholz, Inc.) paidRead MoreCreating Value: Internal and External Factors1257 Words   |  6 PagesLiberty University          INTRODUCTION The purpose of this thread is to discuss the factors that lead to a valuation of a company’s worth compared to that of the financial statements, and how company executives create the most value for all stakeholders.  Ã‚  Value is formed by different internal and external factors.  Ã‚  This discussion will examine some of these factors in an effort to determine how a company’s worth is measured.  Ã‚  This discussion will also include views from a faith-based standpointRead MorePreparation And Presentation Of A Company s Financial Statements1480 Words   |  6 Pagesthe company has to determine the fair value of its assets on an ongoing basis if approximate value in the market is to be reflected in the financial statements. These values are arrived at through the use of cash flow projections that are to be derived from using the assets, even when the company is not certain that these cash flow estimates will come to fruition (Financial Accounting Standards Board, 2 010). The Financial Accounting Standards Board defines fair value as â€Å"the price that would be receivedRead MoreFair Value Measurement2356 Words   |  10 PagesFAIR VALUE MEASUREMENT: IMPLEMENTATION ISSUES AND CHALLENGES (PART 1) (by Tuam Kwok Choon and Ng Kean Kok) INTRODUCTION Since the promulgation of fair value accounting by the International Accounting Standards Board (IASB), the subject matter has been hotly debated by industry players and professionals of the accounting fraternity the world over. Many problems and pitfalls have been highlighted on the mark-to-market premise. For example, David Gwilliam and Richard H.G. Jackson (2008) noted that