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EXCEL - IDEA: XBRL DOCUMENT - Petron Energy II, Inc.Financial_Report.xls
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FAIR VALUE ESTIMATES
12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
NOTE 10 - FAIR VALUE ESTIMATES

In February 2007 the FASB issued ASC 820 “Fair Value Measurements and Disclosures”.  The objective of ASC 820 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements.  ASC 820 defines fair value establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  ASC 820 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.

 

The Company measures its options at fair value in accordance with ASC 820.  820 specifies a valuation hierarchy based on whether the inputs to those valuations techniques are observable or unobservable.  Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions.  These two types of inputs have created the following fair value hierarchy:

 

Level 1- Quoted prices for identical instruments in active markets;

 

Level 2- Quoted prices for similar instruments in active markets, quoted process for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

 

Level 3- Valuations derived from valuations techniques in which one or more significant inputs or significant value drivers are unobservable.

 

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value.  The fair values of the common stock options and preferred stock issuance at December 31, 2011 were as follows:

 

          Significant              
    Quated Active     Other     Significant        
    Markets for     Observable     Unobservable        
    Indentical Assets     Inputs     Inputs     Total  
    (Level 1)     (Level 2)     (Level 3)        
Stock Options   $ -     $ 377,456     $ -     $ 377,456  
Preferred Stock   $ -     $ 4,791     $ -     $ 4,791