How might an entity construct a hypothetical transaction when little or no market information exists with which to measure fair value?
For some assets and liabilities, there are no observable market transactions and market information might not be available. Whether historically there has not been an observable exchange price (eg for some intangible assets acquired in a business combination) or there is no longer an observable exchange price but there was at one time (eg for some financial instruments), the measurement objective remains the same—that is, an exit price from the perspective of a market participant that holds the asset or owes the liability. The exit price for an asset in a market that is not active is not a liquidation value, but the price that would be received in a transaction with a market participant that would hold that asset. In such situations, an entity might have no alternative but to use unobservable inputs (Level 3 of the proposed fair value hierarchy). Such information might include an entity’s own data. However, an entity cannot ignore information about market participant assumptions that i
Related Questions
- How does an entity measure the fair value of a tangible asset (such as property, plant and equipment) that does not have an observable market price or directly identifiable cash flows?
- What information does fair value provide when an entity is using an asset or fulfilling a liability different from how market participants would?
- Where does fair market value come from??
