What guidance does Bombs Away follow regarding the fair value of financial instruments?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
Financial Accounting Standards Board ("FASB") guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
- Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
- Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
- Level 3 Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
As of December 31, 2023, the carrying amounts of the Company's financial assets and liabilities reported in the balance sheets approximate their fair value.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the company adheres to Financial Accounting Standards Board (FASB) guidance for determining the fair value of its financial instruments. This guidance uses a hierarchy of valuation techniques based on whether the inputs are observable or unobservable. Observable inputs are based on market data from independent sources, while unobservable inputs reflect market assumptions.
The FASB hierarchy prioritizes valuation techniques as follows: Level 1 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes inputs other than quoted prices within Level 1 that are observable, either directly or indirectly, such as quoted prices of similar assets in active markets. Level 3 uses unobservable inputs for the asset or liability, relying on pricing models, discounted cash flows, or similar techniques with at least one significant unobservable model assumption or input.
As of December 31, 2023, Bombs Away states that the carrying amounts of its financial assets and liabilities reported in the balance sheets approximate their fair value. This implies that the values recorded on Bombs Away's balance sheet are considered a reasonable reflection of their actual market worth at that time.