CPA Exam Lab
Section 3: 25–35%3E

Fair Value Measurements

Exam insight

Fair value shows up across FAR, and the AICPA loves to test the ASC 820 three-level hierarchy. Almost every question asks you to classify an input as Level 1, 2, or 3. The lines that trip people up: active vs. inactive market (Level 1 vs. 2), identical vs. similar asset (Level 1 vs. 2), and observable vs. unobservable inputs (Level 2 vs. 3). One more anchor to memorize: fair value is an exit price - what you'd receive to sell, not what you'd pay to buy.

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What AICPA wants you to know

  • 1Define fair value using the exit price notion
  • 2Apply the ASC 820 three-level fair value hierarchy
  • 3Distinguish between recurring and non-recurring fair value measurements
  • 4Identify the required note disclosures for each level of the hierarchy
  • 5Apply the concept of principal market or most advantageous market