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A Standard Setting Perspective on Current Issues Facing the Accounting Profession - page 19 / 29

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Fair value measures

Definition:  amount at which an asset could be exchanged or a liability settled in a current hypothetical transaction between knowledgeable unrelated willing parties

Key attributes:

Hypothetical transaction => no requirement that a market exist

Current transaction => measure is not intended to capture the most likely settlement amount

Example:  An arrangement will settle for 100 with probability .30 and for 0 with probability .70.  The most likely settlement amount is 0.  A current transaction would reflect the    dispersion of outcomes:  .30 x 100 + .70 x 0 => 30.

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