Disclosures
Eligible Items at Effective Date
Available-for-Sale and Held-to-Maturity Securities
Not-For-Profit Organizations
Where Are Fair Values Used in Financial Statements?
Fair Value Valuation
Examples of Valuation Models
Market Multiples
Stock Valuation
Bond Valuation
Real Estate Valuation
Matrix Pricing
Discounted Cash Flows (DCF)
Employee Share Options
The Black-Scholes-Merton Option Pricing Model
Other Lattice-based Option Models
Binomial
Trinomial
Multinomial
Nontransferability and Early Exercise
Adjusted Replacement Cost
Illustrations of Fair Value Disclosures – Reliability Assessment
Table 1: The Future Value of $1.00
Table 2: The Future Value of an Ordinary Annuity of $1.00
Table 3: The Present Value of $1.00
Table 4: The Present Value of an Ordinary Annuity of $1.00
Table 5: The Present Value of an Annuity Due of $1.00
Table 6: Monthly Installment Loan Payment
Table 7: Normal Distribution Table
Appendix II: Excel Financial Functions
Appendix III: Annual Reports - Sample Fair Value Disclosures
Marathon Oil 2011 Annual Report
15. Fair Value Measurements
Fair Values – Recurring
Fair Values – Nonrecurring
Fair Values – Financial Instruments
Walt Disney Co. 2010 Annual Report
16. Fair Value Measurement
Fair Value of Financial Instruments
Transfers of Financial
Assets Credit Concentrations
Marathon Oil 2008 Annual Report
17. Fair Value Measurements
Textron2008 Annual Report
Note 10. Fair Values of Assets and Liabilities
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Fair values are more common in financial reports because fair values have increased in business importance in recent years. Increasingly elaborate financial instruments and risk management practices have created financial statement elements for which historical cost is almost irrelevant, and fair value, and fluctuations in fair value, are extremely relevant.
According to the FASB’s recent guidance on fair value measurements ASC820-10-5 (FAS-157, Fair Value Measurements), Level 3 hierarchy accepts fair values estimates based on present value of expected future cash flows. Furthermore, CPAs must have a working knowledge of the time value of money (future value and present value concepts) because of their application to numerous types of business events and transactions which require proper valuation and presentation.
Time value of money is also a critical consideration in financial and investment decisions. For example, compound interest calculations are needed to determine future sums of money resulting from an investment. Discounting is used to evaluate the future cash flow associated with capital budgeting projects. This book aims at presenting the time value tools and techniques that are necessary for fair value measurements and for various financial decision making. Furthermore, this book is a comprehensive survey of fair value accounting with a discussion of : (1) ASC 820, Fair Value Measurements and Disclosures, (2) A list of the financial statement items for which fair value reporting is required or allowed. (3) A variety of valuation models, and (4) Fair value disclosure requirements.
Dr. Jae K. Shim is a professor of business at California State University, Long Beach and CEO of Delta Consulting Company, a financial consulting and training firm. Dr. Shim received his M.B.A. and Ph.D. degrees from the University of California at Berkeley (Haas School of Business). Dr. Shim has
