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A. Land with an assessed value of $750,000 for property tax purposes is acquired by a business for $900,000. Ten years later, the plot of land has an assessed value or $1,200,000 and the business receives an offer of $2,000,000 for it. Should the monetary amount assigned to the land in the business records now be increased? B. Assuming that the land acquired in (A) was sold for $2,125,000, how would the various elements of the accounting equation be affected?
Financial And Managerial Accounting
Solutions
Financial And Managerial Accounting
- A. Land with an assessed value of $750,000 for property tax purposes is acquired by a business for $900,000. Ten years later, the plot of land has an assessed value or $1,200,000 and the business receives an offer of $2,000,000 for it. Should the monetary amount assigned to the land in the business records now be increased?
- B. Assuming that the land acquired in (A) was sold for $2,125,000, how would the various elements of the accounting equation be affected?
(a)
Indicate the amount at which the land is recorded should be changed according to the appraised value of land
Explanation of Solution
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.
Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
 Â
(b)
Indicate the effect of sale of land for $2,125,000, on the accounting equation.
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