Document ID: chunk:federal_register_of_legislation:F2024C00046:body:0:p33
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value and the intrinsic value of an option; and
(c) the multi-period excess earnings method, which is used to measure the fair value of some intangible assets.

Present value techniques
B12 Paragraphs B13–B30 describe the use of present value techniques to measure fair value. Those paragraphs focus on a discount rate adjustment technique and an expected cash flow (expected present value) technique. Those paragraphs neither prescribe the use of a single specific present value technique nor limit the use of present value techniques to measure fair value to the techniques discussed. The present value technique used to measure fair value will depend on facts and circumstances specific to the asset or liability being measured (eg whether prices for comparable assets or liabilities can be observed in the market) and the availability of sufficient data.

The components of a present value measurement
B13 Present value (ie an application of the income approach) is a tool used to link future amounts (eg cash flows or values) to a present amount using a discount rate. A fair value measurement of an asset or a liability using a present value technique captures all the following elements from the perspective of market participants at the measurement date:
(a) an estimate of future cash flows for the asset or liability being measured.
(b) expectations about possible variations in the amount and timing of the cash flows representing the uncertainty inherent in the cash flows.
(c) the time value of money, represented by the rate on risk-free monetary assets that have maturity dates or durations that coincide with the period covered by the cash flows and pose neither uncertainty in timing nor risk of default to the holder (ie a risk-free interest rate).
(d) the price for bearing the uncertainty inherent in the cash flows (ie a risk premium).
(e) other factors that market participants would take into account in the circumstances.
(f) for a liability, the non-performance risk relating to that liability, including the entity's (ie the obligor's) own credit risk.

General principles
B14 Present value techniques differ in how they capture the elements in paragraph B13. However, all the following general principles govern the application of any present value technique used to measure fair value:
(a) Cash flows and discount rates should reflect assumptions that market participants would use when pricing the asset or liability.
(b) Cash flows and discount rates should take into account only the factors attributable to the asset or liability being measured.
(c) To avoid double-counting or omitting the effects of risk factors, discount rates should reflect assumptions that are consistent with those inherent in the cash flows. For example, a discount rate that reflects the uncertainty in expectations about future