Question

The Corner Market has decided to expand its retail store by building on a vacant lot it currently owns. This lot was purchased four years ago at a cost of $299,000, which the firm paid in cash. To date, the firm has spent another $38,000 on land improvements, all of which was also paid in cash. Today, the lot has a market value of $329,000. What value should be included in the analysis of the expansion project for the cost of the land?

Answer 1

Answer:

$329,000

Explanation:

The prudence concept states that assets are not overstated while liabilities are also not understated in order to have a fair and non- misleading view of the financial statement.

In this regard, the cost of the land should be included at the market value as at the date of recording the transaction.

Market value is value that an asset can be exchanged for at an arm's length transaction to an independent buyer in an open market.