Question

Land with an assessed value of $750,000 for

property tax purposes is acquired by a business
for $900,000. Ten years later, the plot of
land has an assessed value of $1,200,000 and
the business receives an offer of $2,000,000 for
it. Should the monetary amount assigned to the
land in the business records now be increased?

Answer 1

The monetary amount assigned to the land in the business records should not be increased based on its assessed value or market value; it should remain at the historical cost of $900,000 per GAAP until a sale occurs or an impairment is recognized.

Step-by-step explanation:

No, the monetary amount assigned to the land in the business records should not be increased simply because its assessed value for property tax purposes or its market value has increased. According to Generally Accepted Accounting Principles (GAAP), assets like land are recorded at their historical cost and do not adjust for fluctuations in market value unless the asset is being impaired or disposed of. The historical cost is the initial amount paid for the asset (in this case, the $900,000 when the land was acquired), providing consistency and comparability in financial reporting.

Property taxes can be reassessed based on a number of factors, but this does not impact the recording value of the asset on business books. The offer of $2,000,000 for the land is an indicator of its current market value, but it does not affect the recorded value unless the transaction is completed. It's important to maintain consistent reporting methods to ensure clear and accurate financial records, which can be assessed for tax purposes in accordance with the relevant property tax regulations and limitations set forth by local governments.