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I am struggling to understand what it means by fair value of a liability? I really don’t understand it, please could you explain with an example?
Also is the fair value hierarchy a way of measuring what level your assets are on? so if your asset is a level 1 (there is a identical asset on the market which you can use to work out the fair value of the asset) level 2 (not identical but similar asset available) or level 3? but what is the point of this fair value hierarchy? How does it benefit anyone?
Hope to hear form you soon pleaseAnswering your second question first – “what is the point of this fair value hierarchy? How does it benefit anyone?”
It allows us to arrive at a goodwill Figure with some degree of discipline
“Fair value of a liability”
I an entity’s normal day-to-day recording, a contingent liability may (will) not be reflected in the financial statements of an entity
But when that entity is acquired by a new parent entity, the assets and liabilities need to be reflected at fair values
What’s the fair value of a contingent liability? It is treated as a provision-able event and is therefore included within the liabilities section when computing goodwill
OK now?
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