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Accounting (Text Only)
Cost concept
On March 31, Higgins Repair Service extended an offer of $415,000 for land that had been priced for sale at $460,000. On April 15, Higgins Repair Service accepted the seller's counteroffer of $437,500. On September 9, the land was assessed at a value of $375,000 for property tax purposes. On December 8, Higgins Repair Service was offered $475,000 for the land by a national retail chain. At what value should the land be recorded in Higgins Repair Service's records?
Cost concept: This is an accounting concept which states that the actual cost paid in receipt of the asset is the reliable measure and hence assets and services should be recorded at actual cost or historical cost.
To describe: The recording of purchase of land in the books of HR Service
- HR Service extended the offer for $415,000, when the land was priced at $460,000. But HR Service did not buy at that price. So, this price should not be recorded as per cost concept.
- The value of land was assessed at $375,000, but this indicates that the value of land was at that time...
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