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Abstract:
Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of a measurement date (typically an entity’s year-end). There are three different acceptable valuation techniques used to calculate fair value: the market approach, the income approach, and the cost approach.
A key assumption in the measurement of fair value, regardless of the approach utilized, is that the exchange of an asset or liability is done so in an orderly transaction between market participants to sell the given asset or liability at the measurement date. Market participants, then, are buyers and sellers in the principal market for that asset or liability.
There are three valuation techniques used to calculate fair value – the market approach, the income approach, and the cost approach.
To learn more about the application of fair value accounting and standards that define a fair value hierarchy, Download the full article below.