Liontari Ltd conducts a business that makes women’s shoes. It operates a factory in an inner suburb of Nicosia. The factory contains a large amount of equipment that is used in the manufacture of shoes. Liontari Ltd owns both the factory and the land on which the factory stands. The land was acquired in 2010 for $200 000 and the factory was built in that year at a cost of $520,000. Both assets are recorded at cost, with the factory having a carrying amount at 30 June 2020 of $260,000. In recent years a property boom in Nicosia has seen residential house prices double. The average price of a house is now approximately $500,000. A property valuation group used data about recent sales of land in the area to value the land on which the factory stands at $1,000,000. The land is now considered prime residential property given its closeness to the city and, with its superb river views, its suitability for building executive apartments. It would cost $100,000 to demolish the factory to make way for these apartments to be built. It is estimated that to build a new factory on the current site would cost around $780,000. The directors of Liontari Ltd want to measure both the factory and the land at fair value as at 30 June 2020. Required: Discuss how you would measure these fair values.
Liontari Ltd conducts a business that makes women’s shoes. It operates a factory in an inner
suburb of Nicosia. The factory contains a large amount of equipment that is used in the
manufacture of shoes.
Liontari Ltd owns both the factory and the land on which the factory stands.
The land was acquired in 2010 for $200 000 and the factory was built in that year at a cost of
$520,000.
Both assets are recorded at cost, with the factory having a carrying amount at 30 June 2020
of $260,000. In recent years a property boom in Nicosia has seen residential house prices
double. The average price of a house is now approximately $500,000. A property valuation
group used data about recent sales of land in the area to value the land on which the factory
stands at $1,000,000.
The land is now considered prime residential property given its closeness to the city and,
with its superb river views, its suitability for building executive apartments. It would cost
$100,000 to demolish the factory to make way for these apartments to be built. It is
estimated that to build a new factory on the current site would cost around $780,000.
The directors of Liontari Ltd want to measure both the factory and the land at fair value as at
30 June 2020.
Required:
Discuss how you would measure these fair values.
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