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Financial asset - Valuation methods (Fair value (Level (2 (indirectly or…
Financial asset - Valuation methods
Fair value
the price that would be received
sell an asset
transfert a liability
market participants
act in their economic best interest
price
fair value price received to sell asset
in the principal market
at the measurement date
on current market condition
Level
1
quoted price
active market
2
indirectly or directly observable
quoted price
similar assets/libilities
active market
identical/similar asset
non-active market
input other than quoted price
interest rates/ yield curves
volatilites
credit spreads
complicate
but
verifyble
3
unobservable inputs
trade off
theory
increase the relevance (timely)
reflect market
about future CF
book value of equity
=
market value
practice
relevance not reliability
w/o error
market price missing
models to calculate the value rely on management assumption
no possibility to proof
measurement leeway
more volatile
downward spiral
Amortized cost
initial recognition
-
principal repayments
+/-
cumulative amortization
effective interest method
estimate CF
no consider expected credit losses
-
reduction
impairement