Question

What is meant by “Level 1,” “Level 2,” and “Level 3” valuations in accounting?

Answer 1

Level 1 : these include valuation of assets where you can get reasonably accurate valuation by "mark to market" because they are liquid and traded - eg: stock, bonds

Level 2 : these include valuation of assets where you can't get reasonably accurate valuation by "mark to market". However by comparing other data points or market estimates or by use of extrapolation models

Level 3 : these include valuation of assets where valuation is possible only through estimated values or a range of values