Financial Accounting

 

 

Maple Ltd conducts a business that makes women’s shoes. It operates a factory in an inner suburb of Perth. The factory contains a large amount of equipment that is used in the manufacture of shoes. Maple Ltd owns both the factory and the land on which the factory stands. The land was acquired in 2007 for $200 000 and the factory was built in that year at a cost of $520 000. Both assets are recorded at cost, with the factory having a carrying amount at 30 June 2017 of $260 000.

In recent years a property boom in Perth has seen residential house prices double. The average price of a house is now approximately $500 000. A property valuation group used data about recent sales of land in the area to value the land on which the factory stands at $1 000 000. The land is now considered prime residential property given its closeness to the city and, with its superb river views, its suitability for building executive apartments. It would cost $100 000 to demolish the factory to make way for these apartments to be built. It is estimated that to build a new factory on the current site would cost around $780 000.

The directors of Maple Ltd want to measure both the factory and the land at fair value as at 30 June 2017.

 

Required:
Discuss how you would measure these fair values.

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