Section 3: 25–35%3E

Fair Value Measurements

Exam insight

Fair value shows up across FAR, and the ASC 820 three-level hierarchy is heavily tested. 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.

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

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Level GameLevel 1 is a quoted price for the identical asset in an active market; anything less observable slides down the ladder.The EPS EngineBasic is income minus preferred dividends over weighted shares; diluted adds each security only if it dilutes, most dilutive first.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.