On February 3, Easy Repair Service extended an offer of $133,000 for land that had been priced for sale at $152,000. On February 28, Easy Repair Service accepted the seller's counteroffer of $145,000. On October 23, the land was assessed at a value of $218,000 for property tax purposes. On January 15 of the next year, Easy Repair Service was offered $232,000 for the land by a national retail chain. At what value should the land be recorded in Easy Repair Service's records?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On February 3, Easy Repair Service extended an offer of $133,000 for land that had been priced for sale at $152,000. On February 28, Easy Repair Service accepted the seller's counteroffer of $145,000. On October 23, the land was assessed at a value of $218,000 for property tax purposes. On January 15 of the next year, Easy Repair Service was offered $232,000 for the land by a national retail chain.
At what value should the land be recorded in Easy Repair Service's records?
According to accounting standards and laws, the cost of the land is the total of all the expenses required to acquire the land and prepare it for use.
Cost of Land includes:
- Contract price
- Commissions expense
- Legal fees
- Title search cost
- Insurance, and past due taxes
- Costs of survey
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