What does Level 1 primarily consist of regarding financial instruments for Chocolate Bash?
Chocolate_Bash 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, December 31, 2022, & December 31, 2021, 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 38)
What This Means (2024 FDD)
According to Chocolate Bash's 2024 Franchise Disclosure Document, Level 1 of the fair value hierarchy primarily consists of financial instruments whose value is based on quoted market prices. These include exchange-traded instruments and listed equities. This level gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
The Financial Accounting Standards Board (FASB) provides guidance on valuation techniques based on whether the inputs are observable or unobservable. Observable inputs use market data from independent sources, while unobservable inputs reflect market assumptions. The fair value hierarchy prioritizes Level 1 measurements, which rely on readily available market prices, over Level 3 measurements, which rely on unobservable inputs.
For Chocolate Bash, as of December 31, 2023, December 31, 2022, and December 31, 2021, the carrying amounts of the company's financial assets and liabilities reported in the balance sheets approximate their fair value. This indicates that the values reported on Chocolate Bash's balance sheets are considered to be a reasonable reflection of their actual market value during those years.