Mason Farms purchased a building for $729,000 eight years ago. Six years ago, re
ID: 2654687 • Letter: M
Question
Mason Farms purchased a building for $729,000 eight years ago. Six years ago, repairs were made to the building which cost $136,000. The annual taxes on the property are $11,000. The building has a current market value of $825,000 and a current book value of $494,000. The building is totally paid for and solely owned by the firm. If the company decides to use this building for a new project, what value, if any, should be included in the initial cash flow of the project for this building?
$494,000 $582,000 $825,000 $865,000 $953,000Explanation / Answer
As per the US GAAP, building are carried at historical cost less accumulated depreciation and accumulated impairment losses.There is no revauluation or upward adjuctment to value due to changing circumstances.In the financial statement , value of building has shown at historical cost.
If the building used for new project.Then, financial statement are different for seperate project. In this case, building are consider at current market price.
In this question, current market price of building is $ 825,000.This value sholud be included in the initial cash flow of the project for this building.
Answer: $ 825,000