Example Exercise 1-1 Cost Concept On August 25, Gallatin Repair Service extended

Question

Example Exercise 1-1 Cost Concept On August 25, Gallatin Repair Service extended an offer of $125,000 for land that had been priced for sale at $150,000. On September 3, Gallatin Repair Service accepted the seller's counteroffer of $137,000. On October 20, the land was assessed at a value of $98,000 for property tax purposes. On December 4 Gallatin Repair Service was offered $160,000 for the land by a national retail chain. At what value should the land be recorded in Gallatin Repair Service's records? 1-28

Explanation / Answer

under cost concept, land be recorded in Gallatin Repairs service(here purchaser) record will be at $137000, since Gallatin has agreed to pay $137000 to seller on Sep 3.Its purchase price is $137000 , other values are irrelevant for records

the fact that the land was assessed at $98000 for property tax purposes has no effect in cost recordings, becase tax recordings are different and are subject to their norms, the assessment is only for the purpose of calculation of property tax.

since on dec 4, Gallatin(here seller) is offered $160000 by the National retail chain for land's sale. If gallatin agrees to sale land to national then he record profit of = 160000-137000 = 23000

and cost of National retail chain will be $160000.

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