FAIR VALUE MEASUREMENT

QUESTION 1

Discuss the pros and cons of fair value accounting.

QUESTION 2

Green Technology Sdn Bhd sells asset A in Kuantan. The following information relates to the markets available for asset A.

	Kuantan	Penang	Kuala Lumpur
Volume per year	100,000 units	500,000 units	1,000,000 units
Sales Price	5 million	5.5 million	6 million
Transaction costs	0.1 million	0.15 million	0.2 million
Transportation costs	0.1 million	0.15 million	0.1 million

REQUIRED:

1. Calculate the possible fair value for asset A in Kuantan, Penang and Kuala Lumpur.
2. Determine the principal market. Determine the fair value of asset A in principal market.
3. Determine the most advantageous market if Kuala Lumpur is not accessible.
4. If Green Technology Sdn Bhd is unable to sell in Kuala Lumpur given to some restrictions, calculate the fair value of asset A.

QUESTION 3

Danau Toba Bhd (DTB) is considering the purchase of DNas Sdn Bhd at the beginning of 2020. A paperwork including the feasibility study has been prepared by the finance manager, Encik Makmur. He believes that DNas Sdn Bhd. can generate cash flows of RM80,000, RM120,000, and RM180,000 over the next three years, respectively. Encik Makmur feels that DNas Sdn Bhd will generate RM90,000 indefinitely at year four onwards. Cash outflow is estimated to be RM30,000 per year. DTB has determined that a 14% rate of return is applicable to this potential purchase. Round your answer to the nearest ringgit. The discount factor at 14 percent is given as follows:

Period	factor
1	0.87719
2	0.76946
3	0.67497
4	0.5921

REQUIRED:

Calculate the fair value of DNas Sdn Bhd.