Question

The Green Tomato purchased a parcel of land six years ago for $299,500. At that time, the firm invested $64,000 grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $28,000 a year. The Green Tomato is now considering building a hotel on the site as the rental lease is expiring. The current value of the land is $355,000. The firm has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land?

Answer 1

The value should be included in the initial cost because the total cost is produced by the company and also other expenses that are sustained should also be included in the cost of asset.

Step-by-step explanation:

Solution:

The value should be added in the cost initial and is its total cost which is produce by the company & in addition to this other expenses which are sustain to get ready to put to use is also added in the cost of asset. now the cost will be 299500 + 64000 which gives 363500$ .

As current value of asset is $355000 which is lower than cost of asset, if its value is reduced it's because of some permanent nature than as per general accounting principles it must be added at $355000, & as value is applicable to analyse this project .so historical cost is not relevant in this case.