Ten years ago a company purchased a building for 120000 At t

Ten years ago, a company purchased a building for $120,000. At that time, the company felt that the building was worth $145,000. The current market value of the building is $450,000. The building has been assessed at $425,000 for property tax purposes. At which amount should the company record the building in its accounting records?

A.$145,000

B.$450,000

C. $425,000

D. $120,000

Solution

According to the Generally accepted accounting principles the Fixed assets should be recorded at its historical cost when purchased and subsequent revaluation is prohibited. After the recognition of fixed assets in the accounting record it should be depreciated periodically and impairment should be done as and when it is required.

Therefore the initial recognition of building in the accounting records should be done at cost i.e. $ 120,000. Thereby periodically decreased by the depreciation charged as per accounting concepts. It cannot be subsequently revalued.

However in case of business combination or amalgamation it can be recorded at fair market value by the new entity.