If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

a. $95,000.

b. $137,000.

c. $138, 500.

d. $140,000.

e. $150,000

Question

Business

Raymond

10 June, 00:09

If a company is considering the purchase of a parcel of land that was acquired by the seller for $85,000, is offered for sale at $150,000, is assessed for tax purposes at $95,000, is recognized by the purchaser as easily being worth $140,000, and is purchased for $137,000, the land should be recorded in the purchaser's books at:

a. $95,000.

b. $137,000.

c. $138, 500.

d. $140,000.

e. $150,000

+5

Answers (1)

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Princess Bond · Answer 1

b. $137,000.

Explanation:

The accounting equation is one that shows the relationship between all the elements of a balance sheet namely; assets, liabilities and owner's equity.

For an entity that purchased a parcel of land (asset) for $85,000 and sold for $137,000, the company that sold the land for $137,000 will derecognize the land and the associated cost while the company that purchased it at $137,000 will recognize it at cost.

The accounting standard IAS 16 requires that the initial recognition of assets should be at cost.

Hence the right answer is b. $137,000.