Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $218,767. The Focus Company initially offered to buy the land for $177,181. The companies settled on a purchase price of $211,881. On the same day, another piece of land on the same block sold for $230,319. Under the cost concept, at what amount should the land be recorded in the accounting records of Focus Company?

Question

Aydan

Business

8 September, 10:21

Donner Company is selling a piece of land adjacent to its business premises. An appraisal reported the market value of the land to be $218,767. The Focus Company initially offered to buy the land for $177,181. The companies settled on a purchase price of $211,881. On the same day, another piece of land on the same block sold for $230,319. Under the cost concept, at what amount should the land be recorded in the accounting records of Focus Company?

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Answers (1)

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Keith Richmond · Answer 1

The cash paid to acquire the land is $211,881.

Therefore it is the amount at which the land is to be recorded in books.

Explanation:

Under the cost concept, whenever an asset is acquired it is recorded in the books at the cash cost of the asset, which is also said to be the historic cost.

It does not provide any value to market value, competitive value or value of similar product.

In the given case the market value of $218,767 is of no importance, as this is not the cash cost.

The cash paid to acquire the land is $211,881.

Therefore it is the amount at which the land is to be recorded in books.

Another piece of land sold at the value of $230,319 is again of no importance for valuation of the land acquired, as this is not the cash cost incurred.