Cost Principles

Question

On June 25, Repair Service extended an offer of $141,000 for land that had been priced for sale at $161,000, On July 9, AAA Repair Service accepted the seller's counteroffes of $153,900. On October 1 the was assessed at a value of $230,000 for property tax purposes. On December 22, AAA Repair Service was offered $245,000 for the land by a national retall chain.

At what value should the land be recorded in AAA Repair Service's records?

Answer 1

Hi Kika!

This problem is looking to assess your knowledge of the accounting principle "Historical Cost". This principle states that "most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time". (investopedia.com) In the case of land purchased by AAA Repair Service, this principle requires that the land be valued at cost on AAA Repair Service's financial statements.

Therefore, AAA Repair Service should record the value of the land they purchased at $153,900.