transaction.
References
Essay Difficulty: 1 Easy Learning Objective: 01-09 Describe the recognition,
measurement, and disclosure concepts that guide accounting
practice.
155.
Award: 10.00 points
How does GAAP define fair value?
Fair value is defined as the price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at
the measurement date.
References
Essay Difficulty: 2 Medium Learning Objective: 01-09 Describe the recognition,
measurement, and disclosure concepts that guide accounting
practice.
156.
Award: 10.00 points
Over time, accounting standards have developed to reflect changes in the business world as well as changes in our ability to account for such changes.
Using the example of marking assets and liabilities to their fair value, explain why you would expect accounting standards to change.
Historically, financial accounting relied on transaction amounts (historical cost) as the fundamental measurement approach for reporting assets and
liabilities. As markets have matured, it is more relevant and feasible to report some assets and liabilities at their fair values, particularly if such items have a
ready market that is active.
References
Essay Difficulty: 2 Medium Learning Objective: 01-09 Describe the recognition,
measurement, and disclosure concepts that guide accounting
practice.
157.
Award: 10.00 points
List and briefly describe the five measurement attributes used commonly in current GAAP.
a. Historical cost: the amount given or received in an exchange transaction.
b. Net realizable value: the net amount of cash into which an asset is expected to be converted in the ordinary course of business.
c. Current cost: the cost that would be incurred to purchase or reproduce an asset.
d. Present value: the sum of future cash flows discounted for the time value of money.
e. Fair value: the price that would be received to sell assets or transfer liabilities in an orderly market transaction.
References
Essay Difficulty: 3 Hard Learning Objective: 01-09 Describe the recognition,
measurement, and disclosure concepts that guide accounting
practice.
158.
Award: 10.00 points
List and briefly describe the three levels of inputs described in the fair value measurement hierarchy.
a. Quoted market prices in active markets for identical assets or liabilities.
b. Inputs other than quoted prices that are observable for the asset or liability. These inputs include quoted prices for similar assets or liabilities in active or
inactive markets and inputs that are derived principally from or corroborated by observable related market data.
c. Unobservable inputs that reflect the entity's own assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances.
References
Essay Difficulty: 3 Hard Learning Objective: 01-09 Describe the recognition,
measurement, and disclosure concepts that guide accounting
practice.
159.
Award: 10.00 points
Contrast the asset/liability and revenue/expense approaches to accounting standard setting.
Under the revenue/expense approach, we emphasize principles for recognizing revenues and expenses, with some assets and liabilities recognized as
necessary to make the balance sheet reconcile with the income statement. Much of our accounting for revenues and expenses follows this
revenue/expense approach.
Under the asset/liability approach, on the other hand, we first recognize and measure the assets and liabilities that exist at a balance sheet date and,
secondly, recognize and measure the revenues, expenses, gains, and losses needed to account for the changes in these assets and liabilities from the
previous measurement date. Therefore, we should try to recognize and measure assets and liabilities appropriately, and as a result will also capture their
inflows and outflows in a manner that provides relevant and representationally faithful information about revenues and expenses.
References
Essay Difficulty: 3 Hard Learning Objective: 01-10 Contrast a revenue/expense approach
and an asset/liability approach to accounting standard setting.
160.
Award: 10.00 points
Contrast the role of the conceptual framework in U.S. GAAP and IFRS.
The conceptual frameworks in U.S. GAAP and IFRS are very similar and are converging even more with ongoing efforts by the FASB and IASB. However, in
U.S. GAAP, the conceptual framework primarily provides guidance to standard setters to help them develop high-quality standards. In IFRS the conceptual
framework guides standard setting, but in addition it is supposed to provide a basis for practitioners to make accounting judgments when another IFRS