Loose Ends in Valuation ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly attributable costs incurred was P250,000. If ABC were to resell this land now, it would incur cost to sell of P400,000. The following rates were gathered. Weighted average cost of capital 15% Land average price increase per year 18% Inflation rate 4% Required: Assuming that ABC plans to sell the asset by the end of the fifth year, compute the following: 1. Cost of the land to be recognized in the accounting books 2. Selling price of the land 3. Cost to sell
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Loose Ends in Valuation
ABC bought a piece of land in a highly developing area for a purchase price of P4,000,000. Directly attributable costs incurred was P250,000. If ABC were to resell this land now, it would incur cost to sell of P400,000. The following rates were gathered.
| Weighted average cost of capital | 15% |
| Land average price increase per year | 18% |
| Inflation rate | 4% |
Required: Assuming that ABC plans to sell the asset by the end of the fifth year, compute the following:
1. Cost of the land to be recognized in the accounting books
2. Selling price of the land
3. Cost to sell
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