Please talk about the practical application of fair value in real enterprise financial work, and put forward your own views.

What is fair value? Fair value is also called fair market price and fair price. The price determined by buyers and sellers who are familiar with the situation under fair trade conditions, or the transaction price at which no related party can buy or sell an asset under fair trade conditions. Under fair value measurement, assets and liabilities are measured according to the amount of assets exchange or debt settlement voluntarily conducted by both parties familiar with the situation in fair trade. The purchasing enterprise needs to use fair value information in the consolidated business records. In practice, asset appraisal institutions usually evaluate the net assets of the acquired enterprises. Determination of the fair value of the net assets of the merged enterprise 1, and the securities are determined according to the current net realizable value;

2. Accounts receivable and notes receivable are discounted at the actual interest rate at that time according to the amount expected to be recovered in the future, and determined by subtracting the expected bad debt loss and recovery cost;

3. The inventory of finished products and commodities shall be determined according to the estimated selling price minus liquidation expenses and reasonable profits;

4. In the product inventory, it is determined according to the estimated product price after completion minus the cost at completion, liquidation expenses and reasonable profit;

5. Raw materials are determined according to the current replacement cost;

6. Fixed assets should be treated differently: fixed assets that can be used are priced according to the current replacement cost of fixed assets with similar production capacity, unless the use of these assets is expected to be of low value to the purchasing enterprise in the future; For fixed assets that will be sold or held for a period of time (but not used) before sale, they can be priced according to the net realizable value; Fixed assets sold after temporary use for a period of time shall be valued at net realizable value after depreciation is confirmed during future use;

7. The identifiable intangible assets such as patent right, trademark right, lease right and land use right are valued according to the assessed value, and the goodwill is determined according to the difference between the investment cost of the purchasing enterprise and the confirmed fair value;

8. Natural resources, long-term investments and other assets that cannot be listed and traded shall be determined according to the assessed value;

9. Liabilities such as accounts payable, notes payable and long-term loans are determined according to the amount to be paid in the future and the amount discounted at the current interest rate;

10, contingencies and agreed obligations, such as payments caused by unfavorable lease agreements, constraints of contracts on enterprises, and upcoming expenses for cleaning up fixed assets, shall be fully estimated according to the estimated payment amount and valued at the present value discounted at the actual interest rate at that time.

As long as the identifiable assets and liabilities are merged, it is necessary to determine their fair values, such as the R&D cost of the enterprise, the cost of action plan, the cost of developing a formula and so on. The significance of determining the fair value of the net assets of the merged enterprise is 1. As the reserve price of the merged enterprise, it forms the basis for determining the effective price of both parties to the property right transaction;

2. The difference between the fair value of net assets and the book value of net assets is the increase or decrease of the net assets of the merged enterprise; The difference between the investment cost of the purchasing enterprise and the fair value of the net assets of the merged enterprise is goodwill or negative goodwill (see "goodwill and negative goodwill"); Under the full equity method, the above difference must be amortized during the benefit period of the asset, so fair value is one of the important basis for determining the value of goodwill (see "equity method"). Although it is recorded at book value under the equity combination method, fair value still has special significance to it, that is, fair value is still the basis for determining the number of shares payable in exchange for net assets, so as to make the transaction more reasonable. Fair value measurement mode of new accounting standards and its influence 1. Fair Value Measurement of Investment Real Estate and Its Impact The investment real estate specified in Accounting Standards for Business Enterprises No.3-Investment Real Estate refers to the real estate that can be separately measured and sold by enterprises in order to earn rent or capital appreciation, including rented buildings and land use rights that have been rented or held and are ready to be transferred after appreciation. This criterion provides two alternative measurement modes for enterprise investment real estate: cost mode and fair value mode. Under the cost model, investment real estate is depreciated or amortized according to the standards of fixed assets and intangible assets, and the impairment test is carried out at the end of the period, and the corresponding impairment reserve is accrued; If there is conclusive evidence that its fair value can be obtained continuously and reliably, enterprises can adopt the fair value measurement model. The depreciation, impairment or amortization value of investment real estate measured by fair value is directly reflected in the change of fair value, which will affect the profit of the enterprise through "gains and losses from changes in fair value" instead of being accrued separately. Affected by this, in the context of rising real estate prices, commercial and real estate enterprises with buildings for rent or land use rights to be appreciated will be positively affected. However, the houses and buildings for sale owned by real estate development enterprises are used as enterprise inventory accounting, and their pricing basis is still based on the cost model, which is not affected by the appreciation of fair value. Even if such enterprises sell houses and buildings for rent in order to apply the fair value measurement model, in the first year of the implementation of the standards, the fair value exceeding the book cost can only be adjusted at the beginning of the year, which will not affect the profits of that year. Therefore, there is no theoretical basis to predict the large-scale performance growth of the real estate industry in 2007 because of the changes in the new accounting standards. Of course, if the real estate market maintains a bull market during or after 2007, the benefits brought by the new accounting standards will gradually emerge.

2. Fair value measurement of financial instruments and its impact According to the Accounting Standards for Business Enterprises No.22-Recognition and Measurement of Financial Instruments, financial instruments measured at fair value mainly include transactional financial assets and financial liabilities, such as stocks, bonds and funds purchased from the secondary market by enterprises to make full use of idle funds and earn price differences; Another example is that the enterprise has no derivatives used as effective hedging tools, such as forward contracts, futures contracts, swaps and options. In addition, enterprises can directly designate certain financial assets or financial liabilities to be measured at fair value based on the needs of risk management or in order to eliminate the inconsistency in accounting recognition and measurement of financial assets or financial liabilities. The reported value of these financial instruments classified as fair value measurement is market value, and its changes are directly included in the current profit and loss. This also means that if the enterprise can better grasp the market situation and trends, its performance will increase with the increase of "fair value change profit and loss"; On the contrary, if an enterprise's investment strategy is inconsistent with the market situation, its current profit will be damaged. Therefore, the measurement attribute of fair value can be regarded as a "double-edged sword", which is quite different from the old criterion of "reporting good news but not worrying", so that the reported value of financial instruments is often underestimated.

3. Fair value measurement of other businesses and its impact According to incomplete statistics, in the new accounting standards system, at least 17 of the 38 specific standards that have been promulgated at present use the fair value measurement attribute to varying degrees. In addition to the above analysis, there are other transactions or events such as non-monetary assets exchange, debt restructuring, and enterprise merger under different control. The reason why the new accounting standards adopt the fair value measurement model for these transactions or events is mainly due to the principle that substance is more important than form. For example, for the exchange of non-monetary assets between enterprises with commercial essence, the assets exchanged and exchanged by fair value measurement are essentially to confirm the "sale" and "purchase" of non-monetary assets of enterprises, and the difference between the fair value and book value of "sold" assets is the income realized by enterprises. Similar businesses can only be priced at book cost under the old accounting standards, and the difference between fair value and book value cannot be recognized as enterprise profits and losses; Similarly, if the fair value of non-monetary assets used by an enterprise to pay off debts in debt restructuring is higher than its book value, the higher part, together with the debt exemption obtained, can increase the current profit; In a business combination not under the same control, the difference between the fair value of assets paid by the buyer and the book value of liabilities incurred or undertaken by the buyer shall be included in the current profits and losses of the enterprise. Adopting the fair value measurement model in these transactions overcomes the defect of underestimating the asset value of enterprises because of adopting the cost valuation model, thus reflecting the asset value and operating performance of enterprises more truly.