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23 October, 15:05

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

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  1. 23 October, 16:57
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    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.
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