Georgetown Ltd Purchased a Block of Land on 31 March

question 15

Multiple Choice

Georgetown Ltd purchased a block of land on 31 March and paid $400 000 cash to the land owner. An independent evaluation reveals that the land is worth $500 000. Using historical cost as a measurement base, how should Georgetown Ltd recognise this purchase of land in its financial statements?

• A) $400 000 recognised as an asset (land) and $100 000 as a liability.
• B) $400 000 recognised as an asset (land).
• C) $500 000 recognised as an asset (land).
• D) The land should not be recognised as an asset as it cannot be reliably measured.

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Definitions:

Economic Models

Simplified representations of complex economic processes, used to predict and analyze economic behaviors and outcomes.

Complexity Of Reality

The notion that real-world situations are intricate due to interconnections and interdependencies among various elements and variables.

Simplifications

The process of making something easier to understand or do by reducing its complexity.

Trade-Offs

Decisions made that involve a sacrifice of one thing to obtain another, often used in discussions of economic and personal choices.