'Ice-Cream R Us' Ltd

question 3

Multiple Choice

'Ice-cream R Us' Ltd. just purchased a block of land, on which it will build a new factory for its operations. 'Ice-cream R Us' paid $500,000 cash to the land owner. An independent evaluation reveals that the land is worth $550,000. Using historical cost as a measurement base, how should 'Ice-cream R Us' recognise the land purchase in its financial statements?

• A) $500,000 recognised as an asset (land).
• B) $550,000 recognised as an asset (land).
• C) $500,000 recognised as an asset (land) and $50,000 as a liability.
• D) The land should not be recognised as an asset as it cannot be measured with reliability.

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