Fair Value Hierarchy (Level 1, Level 2, Level 3)

This video discusses the 3-level fair value hierarchy. Assets or liabilities measured as fair value are classified into one of three levels based on the nature of the inputs that were used to determine the fair value. Level 1 fair values are based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets (e.g., a share of common stock in a large publicly-traded company). Level 2 fair values are based on observable inputs that reflect quoted prices for similar assets or liabilities, or assets or liabilities that are traded in less active markets (e.g., a municipal bond). Level 2 fair values are not based on observable inputs, but are instead calculated using managerial inputs and assumptions.-
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[@MyFinancialFocus]

Interesting. I like studying these concepts and then finding applicable examples when I read annual reports for companies. Thanks for the information!

[@Notoriouslyswift]

Amazing, thank you for a concise answer and the provided examples! Brilliant.

[@Edspira]

Happy to help!

[@zkrtrt]

Very concise definition of the Levels in Fair Value: Level 1 - Use your eyes. Level 2 - Use your eyes. Adjust for the little things that you can't really see, but have darn good evidence that they should be as you account for them. Level 3 - Blow it out your ass.

[@briankaluae9250]

Thank you for the video. what are the complexity involved in the application of fair value accounting from a financial accountant’s perspective?

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[@sanyashabbag7628]

I have a question, in the exam question if we're given fair value of equipment as well as original cost of the equipment, which value of the equipment should I put in the statement of financial position (Balance Sheet)????

[@chakoi93]

Sanya Shabbag if there is revaluation, put the fair value and recognise the surplus or deficit in revaluation, if no revaluation put cost price

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Thank you so much

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