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15 June, 20:01

Perlman Land Development, Inc. purchased land for $70,000 and spent $30,000 developing it. It then sold the land for $160,000. Sheehan Manufacturing purchased land for a future plant site for $100,000. Due to a change in plans, Sheehan later sold the land for $160,000. Should these two companies report the land sales, both at gains of $60,000, in a similar manner?

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  1. 15 June, 20:12
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    Not necessarily, it all depends on what land improvements were made by Perlman.

    Explanation:

    If Perlman spent $30,000 on landscaping then its useful life is very short so it can either be depreciated as a separate asset (since the cost was relatively high) or considered maintenance expenses. But if Perlman spent $30,000 on land leveling then that cannot be depreciated and it is added to the total cost of the land.
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