FAR: Fair value measurement concepts and classification (ASC 820)

The rules, one page each

1. ASC 820 Level 1: Equity Lockups and Blockage DiscountsContrasting cases

   Use the unadjusted quote for identical shares in an active principal market accessible at the measurement date. Holder-specific contractual sale restrictions and blockage discounts do not change that price or its Level 1 classification.

2. Level 2 debt securities: observable inputs (matrix pricing, pricing services)Contrasting cases

   When no unadjusted quoted price for the identical instrument in an active market exists, classify as Level 2 if the significant inputs are observable market data (for example, quoted prices for similar bonds, benchmark yield curves, market‑corroborated spreads) and no significant unobservable inputs are used.

3. Fair value price: principal vs most advantageous market, and transport vs transaction costsWorked example

   Use the price in the principal market the entity can access at the measurement date; if none, use the most advantageous market. When location is a characteristic of the asset, adjust for transportation costs to that market, but exclude transaction costs from fair value.

4. Hierarchy mechanics: lowest-level input rule, transfers, exit price, and nonorderly tradesStep by step

   Fair value is an exit price in the principal (or most advantageous) market at the measurement date. Classify by the lowest‑level input that is significant to the entire measurement, reassessed at each measurement date. Recognize transfers between levels when the inputs used change per the entity’s policy. Ignore nonorderly trades when appropriate.