Fair Market, Inc. Purchase of Land, Warehouse, and Delivery Truck

Fair Market, Inc. purchase details

Fair Market, Inc. purchased land, a warehouse, and a delivery truck for $450,000. The appraised values for the items are $300,000, $150,000, and $50,000, respectively.

Fair Market should record this purchase as - The property was valued at $270,000, the structure at $135,000, and the delivery vehicle was valued at $45,000 on the balance sheet.

Analysis of the purchase

In this instance, Fair Market, Inc. spent $450,000 on the acquisition of property, a warehouse, and a delivery van. The objects' respective appraised values are $300,000, $150,000, and $50,000. The appraised values are not pertinent for accounting reasons, despite the fact that they may be beneficial for determining the current worth of these assets. The most reliable indicator of the worth of these assets is the actual cost incurred by the business.

Asset tracking and depreciation

The proper tracking of each asset's value over time is made possible by using distinct accounts for each item. Depreciation expenditures, which are crucial for correctly reflecting the decline in value of these assets over time, may be calculated using this information.

What values should Fair Market, Inc. use to record the purchase on the balance sheet?

Fair Market, Inc. should use the actual purchase price of $450,000 to record the acquisition of land, warehouse, and delivery truck on the balance sheet.