Statement of Financial Accounting Standards No. 157 - Paper Audit ...

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market prices in active markets are the best evidence of fair value and shall be used as the basis for the measurement, if available. However, in many instances, quoted market prices in active markets will not be available for the long-lived assets (asset groups) covered by this Statement. In those instances, the estimate of fair value shall be based on the best information available, including prices for similar assets (groups) and the results of using other valuation techniques. 12 The fair value of an asset or a disposal group refers to the amount at which the group as a whole could be bought or sold in a current single transaction. Therefore, the fair value of the group would not necessarily equate to the sum of the fair values of the individual assets and liabilities of the group. b. Paragraph 23 and its related footnote 13: A present value technique is often the best available valuation technique with which to estimate the fair value of a long-lived asset (asset group). Paragraphs 39–54 of FASB Concepts Statement No. 7, Using Cash Flow Information and Present Value in Accounting Measurements, discuss the use of two present value techniques to measure the fair value of an asset (liability). 13 The first is expected present value, in which multiple cash flow scenarios that reflect the range of possible outcomes and a risk-free rate are used to estimate fair value. The second is traditional present value, in which a single set of estimated cash flows and a single interest rate (a rate commensurate with the risk) are used to estimate fair value. Either present value technique can be used for a fair value measurement. However, fFor long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value. (Example 4 of Appendix A illustrates the use of that technique.) 13 Appendix E incorporates those paragraphs of Concepts Statement 7. c. Paragraph 24 and its related footnote 14: If a present value technique is used, estimates of future cash flows shall be consistent with the objective of measuring fair value. Assumptions that marketplace participants would use in their estimates of fair value shall be incorporated whenever that information is available without undue cost and effort. 14 Otherwise, the entity may use its own assumptions. 132
14 Concepts Statement 7 discusses the essential elements of a present value measurement (paragraph 23) and provides reasons why an entity’s estimates of cash flows might differ from those used by marketplace participants (paragraph 32). Appendix E incorporates those paragraphs. d. Paragraph A6: At December 31, 20X2, a manufacturing facility with a carrying amount of $48 million is tested for recoverability. At that date, 2 courses of action to recover the carrying amount of the facility are under consideration—sell in 2 years or sell in 10 years (at the end of its remaining useful life). of 10 years. The facility has identifiable cash flows that are largely independent of the cash flows of other assets. e. Paragraph A7: As indicated in the following table, the possible cash flows associated with each of those courses of action are $41 million and $48.7 million, respectively. They are developed based on entity-specific assumptions about future sales (volume and price) and costs in varying scenarios that consider the likelihood that existing customer relationships will continue, changes in economic (market) conditions, and other relevant factors.The following table shows the range and probability of possible estimated cash flows expected to result from the use and eventual disposition of the facility assuming that (a) it is sold at the end of 2 years or (b) it is sold at the end of 10 years. Among other things, the range of possible estimated cash flows considers future sales levels (volume and price) and associated manufacturing costs in varying scenarios that consider (a) the likelihood that existing customer relationships will continue and (b) future economic (market) conditions. The probability assessments consider all information available without undue cost and effort. Such assessments are by their nature subjective and, in many situations, may be limited to management’s best judgment about the probabilities of the best, worst, and most-likely scenarios. 133
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Financial Accounting Series NO. 284
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Summary This Statement defines fair
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(blockage factor). This Statement e
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instruments as of the beginning of
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Copyright © 2006 by Financial Acco
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Statement of Financial Accounting S
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disaggregated) for purposes of appl
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Application to Assets 12. A fair va
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of the elements in the transaction,
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paragraph 19). The disclosure provi
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sufficient to absorb the quantity h
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c. For fair value measurements usin
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38. At the date this Statement is i
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A3. The judgments applied in differ
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include those buyers that initially
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participants have technology in a m
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elevant data points in the market a
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in the fair value hierarchy within
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the one- and two-year options on th
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tions in which the price in a trans
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higher of its fair value in-use as
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measure fair value are required in
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Assets Measured at Fair Value on a
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d. The price for bearing the uncert
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liability being measured, it may be
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cash flows, it likely will be highe
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Appendix C BACKGROUND INFORMATION A
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Appendix C BACKGROUND INFORMATION A
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Scope Share-Based Payment Transacti
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epresent the fair value of the inst
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C20. Accordingly, the guidance for
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clearly, the Board revised the defi
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or liability (for example, a commod
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Application to Liabilities C39. For
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whether changes in a debtor’s cre
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entity’s credit standing makes th
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Valuation Techniques C53. This Stat
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C60. In its discussions, the Board
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generally provide the most reliable
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not sufficient to absorb the quanti
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similar guidance in paragraph AG72,
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that indicates that market particip
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asset or liability. The Board concl
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alone, would not be cost beneficial
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