Ch 7.docx

2 Pages
Unlock Document

Business Administration
BUS 421
Howard Trottier

Ch 7: Measurement Applications Exit Price: opportunity cost Ideal Situation: Based on the selling price of an asset in a well working market or the amount the firm has to pay to dispose of a liability FV Hierarchy: o Level 1: A or L for which a reasonably well working mkt price exists o Level 2: Assets and liabilities for which a market price can be inferred from the market prices of similar items o Quoted prices in non-active mkt for identical assets or liabilities o Inputs derived from or corroborated by observeable mkt info o Level 3: Assets and liabilities for which a market value cannot be observed or inferred – the firm shall use the best available information about how a market participant holding the asset or liability would value the item o Estimate how much a prospective purchaser would be willing to pay through expected future cash flows Historical cost = Cost – dep – impairment Ways to mitigate negative effects of FV: o Government intervention (investing public money in banking industry) o Relaxing legal capital constraints o Buying excess LT assets o Standard setters: o Certain LT financial assets allowed to be valued at amortized cost o Inactive market o Firms estimate FV Incentive exists for managers to sell illiquid assets whose values have fallen below value in use before a write down occurs o Therefore shareholders prefer historical cost o When value in use is high… o Managers inclined to sell even though proceeds may be less than value in use o Therefore SHs prefer FV
More Less

Related notes for BUS 421

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.