Accounting question

Question

MR. ABC acquired his business for P3 million. The Fair Market value of the business is P5 million. Will it be more useful if accounting records were adjusted corresponding to the fair market value amount of the business? Justify your answer

Answer 1

You would want to adjust the books to the fair market value because when you think about the value of the assets you have, you want them to be relative to the external market. Something is only as valuable as someone else is willing to pay you for it. As a result you would like to have this business listed under its fair value.