From the course: Accounting Foundations: Asset Impairment
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What will we report in the future, cost or fair value?
From the course: Accounting Foundations: Asset Impairment
What will we report in the future, cost or fair value?
- [Man In Pink] Imagine a retail company that purchased land 10 years ago at a cost of $2 million. The current market value of the land is estimated to be $10 million. - Okay, so what is the retail company currently doing with the land? - The land is the location of one of the company's large regional distribution centers. - [Man In Red] Okay, I've got it. Of course, according to U.S. accounting rules, the land is reported in the company's balance sheet at its cost of $2 million. - Well, let's think outside the box. If you were a banker or a potential investor looking at this retail company's balance sheet, which number would you want to see, the $2 million cost, or the $10 million market value? Which number is more useful to you? - Okay, so that's a good question. One benefit of the $2 million cost number is that it's exact. It's precise. It's easily verifiable. Just look at the original purchase contract and…
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