In short
The fair value hierarchy ranks the inputs used to measure fair value in three levels, from quoted prices in active markets (Level 1) to unobservable inputs based on the entity's own assumptions (Level 3).
Key takeaways
- Level 1: quoted prices for identical assets or liabilities in active markets.
- Level 2: other observable inputs, such as quoted prices for similar items or observable interest rates.
- Level 3: unobservable inputs; these measurements need the most disclosure.
Where it's tested
FAR: Investments (Debt & Equity Securities) — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
An entity holds an equity security that does not have a readily determinable fair value and does not qualify for the equity method. If it elects the measurement alternative, the investment is measured at: