A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

Question

Junior

Business

29 July, 01:59

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

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Belen Arnold · Answer 1

According to the historical cost principle you should record assets on your balance sheet at the original price or cost that you bought them at, regardless of their market value. For eg if you bought a machine for 400,000 and its market price changes to 500,000 after you bought it, you will still record it at 400,000 on your balance sheet. So in this case the company bought the land and the building for 900,000 so they will record it at 900,000 at the time of the purchase as 900,000 is the historical cost of the land and the building.