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Auditing & Assurance Services (Auditing and Assurance Services)
7th Edition
ISBN: 9781259573286
Author: Timothy J Louwers, Allen Blay, David Sinason Associate Professor, Jerry R Strawser, Jay C. Thibodeau Associate Professor
Publisher: McGraw-Hill Education
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Question
Chapter C11, Problem 1DQ
To determine
Describe the discounted
Expert Solution & Answer
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Explanation of Solution
Discounted cash flow approach: The discounted cash flow approach compares the initial
Level 3 assets: The Level 3 asset refers to the fair-value asset possessing one or more unobservable measures of value.
The evaluation of the value of Level 3 asset:
- To Level 3 assets are generally evaluated through discounted cash flow method.
- The company at times projects the future cash flow as well as their discounted rates, to estimate the value of the assets.
The assumptions underlying this approach are:
- The future cash flow is not known.
- Presence of the risk of default.
- Application of the discount rate is difficult to estimate.
- Prominence of future cash flows and default rate is a significant estimate.
- Difficulty in understanding risk component.
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Chapter C11 Solutions
Auditing & Assurance Services (Auditing and Assurance Services)
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