You are the chief financial officer of a small company. At a recent meeting of the directors, an appraisal report was circulated showing the current market value of the company’s property, plant, and equipment was $3,500,000. The same assets were listed on the company’s balance sheet at $1,750,000. This figure represents historical costs of 5 to 15 years ago less accumulated depreciation. During the meeting, a director addressed the following question to you: “It seems reasonable to value these assets for accounting purposes at the market price set by an independent appraiser; what justification is there for leaving these assets on the books at historical cost?”
Required:
a. Prepare an answer to the director’s question.
b. If U.S. GAAP, like IFRS, allowed revaluation, how might you account for the revaluation?
What would be the journal entries?
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