Joined: 06 Dec 2008 Location: United States
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Posted: 26 May 2009 at 10:18 | IP Logged
While I was reading Becker’s textbook 2009 ed, I found a strange sentence. I’m not sure if I understood it.Could anyone explain it to me in plain English?
“The level in the fair value input that is significant to the fair value measurement falls is determined by the lowest level input that is significant to the fair value measurement” chapter 1, page 46, the last sentence of B. HIERARCHY OF INPUTS
Joined: 22 Feb 2009
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Posted: 26 May 2009 at 10:39 | IP Logged
well, I am not sure what the sentence is but I know that it refers to the level of inputs to determine the fair value, those are referred to al level I through III.
Those are -
Level I - observable markets
Level II - Similar assets (in observable markets)
Level III - No observable market
Thus, level I is a better determinant of Fair Value than Level III.
Joined: 06 Dec 2008 Location: United States
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Posted: 26 May 2009 at 18:32 | IP Logged
it says "fair value measurement falls is determined by the lowest level input" why is it determined by the lowest level? I thought it is determined by the highest level.
Joined: 27 May 2009
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Posted: 27 May 2009 at 00:47 | IP Logged
That is right Aiman. To determine the fair value level (i.e., in Level I, II or III) in which a particular security falls in, we would need to see the "lowest level of input which is significant to the fair value measurement." So let say when you value a security for which numerous inputs are used for valuation (which can be observable or non-observable). In such a case, in order to decide which level you are falling in, you see the significance of the lowest input to the overall valuation. So if you have a security for which the lowest level of a significant input necessary for valuation is a level III type input (company specific), then the security falls into level III valuation category.
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