Quiz: Fair Value Measurement

Last reviewed: October 3, 2026

This is a draft, shown for review before publication.

5 questions to check your understanding of the chapter “Fair Value Measurement”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.

Question 1
IFRS 13 divides the inputs used to measure fair value into three levels. What determines the level of a measurement?
1. A.The type of transaction, with a listed derivative at Level 1
2. B.How observable the significant inputs to the measurement as a whole are
3. C.The valuation technique, with the market approach at Level 1
4. D.How strong the intention is to hold an asset or settle a liability
Answer and explanation
Answer: B
Fair value is estimated with a valuation technique, but the levels give priority to the inputs to the technique, not to the technique itself. For example, a fair value derived with a present value technique can be Level 2 or Level 3, depending on the level of the inputs that are significant to the measurement as a whole.

The level of a derivative is likewise determined by the inputs used in the measurement, not by the type of product. The market approach, the income approach and the cost approach are ways of grouping the ideas behind valuation techniques, and they do not correspond to the levels. The intention to hold or to settle is not relevant to the measurement of fair value itself.
Learn more: Fair Value Measurement: IFRS 13, ASC 820 and the Fair Value Hierarchy
Question 2
Which adjustment does IFRS 13 not permit in measuring fair value?
1. A.A premium or discount that reflects characteristics that market participants would consider in a transaction
2. B.Reflecting the effect of non-performance risk, including the entity's own credit risk, in the fair value of a liability
3. C.Taking the counterparty's credit risk into account in the fair value of a derivative
4. D.An adjustment made because the quantity held is larger than the normal daily trading volume of the quoted price
Answer and explanation
Answer: D
An adjustment made because the quantity held is larger than the normal daily trading volume of the quoted price (a blockage factor) is not permitted.

A premium or discount that reflects characteristics that market participants would consider in a transaction is included in fair value. The fair value of a liability reflects the effect of non-performance risk, which includes the entity's own credit risk. The fair value of a derivative is required to take into account both the entity's own credit risk and the counterparty's.
Learn more: Fair Value Measurement: IFRS 13, ASC 820 and the Fair Value Hierarchy
Question 3
How does the Japanese Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30) treat shares and similar items without a market price?
1. A.Even if a value can be calculated by some method, it is not treated as fair value, and the items are carried on the balance sheet at acquisition cost
2. B.A value is calculated with unobservable inputs and carried on the balance sheet as a Level 3 fair value
3. C.They are put in the category of "securities whose fair value is recognized as extremely difficult to determine" and treated as before
4. D.They are not treated as fair value and are carried on the balance sheet at acquisition cost, with a fair value note always added
Answer and explanation
Answer: A
Shares and similar items without a market price carry over the earlier approach: even if a value can be calculated by some method, it is not treated as fair value. They are therefore carried on the balance sheet at acquisition cost, and no fair value note is required.

The category of securities whose fair value is recognized as extremely difficult to determine does not fit the idea of measuring fair value even with unobservable inputs, so it was deleted. Treating a value calculated with unobservable inputs as a Level 3 fair value does not apply to shares and similar items without a market price.
Learn more: Japan's Fair Value Measurement Standard
Question 4
As a hypothetical example, the inputs that have a significant effect on the measurement of a fair value include two Level 1 inputs and one Level 3 input. Under the Japanese Accounting Standard for Fair Value Measurement, how is the fair value classified?
1. A.As a Level 1 fair value
2. B.As a Level 2 fair value
3. C.As a Level 3 fair value
4. D.As Level 1 and Level 3 fair values, split by level
Answer and explanation
Answer: C
A fair value is classified according to the level to which the inputs that have a significant effect on the measurement belong. When inputs of different levels have a significant effect, the fair value is classified in the lowest-priority level among them. Including inputs of the level given priority does not make it Level 1, and it is not Level 2 as a level between Level 1 and Level 3. It is not split by level; the fair value as a whole is classified in one level. Here, there are more Level 1 inputs, but because even one Level 3 input is included, the fair value is a Level 3 fair value, regardless of the levels or the number of the other inputs.
Learn more: Japan's Fair Value Measurement Standard
Question 5
As a hypothetical example, a company holds a derivative to which it does not apply hedge accounting, with a counterparty under a single netting agreement. Under IFRS 9 (2025 edition), the risk-free value is 12 million yen at both the start and the end of the period. The CVA goes from 0.4 million yen at the start to 0.5 million yen at the end, and the DVA goes from 0.1 million yen to 0.3 million yen. What is the profit or loss for the period from the changes in CVA and DVA?
1. A.A loss of 0.3 million yen
2. B.A loss of 0.2 million yen
3. C.A loss of 0.1 million yen
4. D.A gain of 0.2 million yen
5. E.A gain of 0.1 million yen
Answer and explanation
Answer: E
The adjusted value is "risk-free value − CVA + DVA". At the start it is 12 − 0.4 + 0.1 = 11.7 million yen. At the end it is 12 − 0.5 + 0.3 = 11.8 million yen.

The profit or loss is the difference between the end and the start, 11.8 − 11.7 = 0.1 million yen, a gain. This matches −0.1 + 0.2 = 0.1 million yen, because the increase in CVA (0.1 million yen) is a loss and the increase in DVA (0.2 million yen) is a gain.

The wrong values come from common mix-ups. A loss of 0.3 million yen adds the increases in CVA and DVA as adjustments that both lower the value. A loss of 0.2 million yen leaves out the change in CVA and treats the increase in DVA as a loss. A loss of 0.1 million yen leaves out the change in DVA and counts only the increase in CVA as a loss, and a gain of 0.2 million yen leaves out the change in CVA and counts only the increase in DVA as a gain.

Changes in the fair value of a derivative to which hedge accounting is not applied are recognized in profit or loss. A derivative liability is measured at fair value through profit or loss even without a fair value option designation, so the change in DVA is also recognized in profit or loss. An increase in DVA reflects a deterioration in the company's own credit standing, yet it raises the value and produces a gain. Conversely, a deterioration in the counterparty's credit standing increases CVA and produces a loss.
Learn more: CVA and DVA in Accounting

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