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13. Why is it common for the book value of the inventory and land of an...

13. Why is it common for the book value of the inventory and land of an acquired company to be less than the fair values of these items? (5 points)

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Answer #1

Under historical cost concept, asset shall be recorded at its purchase price rather than fair market value, unless it is permanent fall in the value of asset & for inventory the cost is recorded as Lower of Cost or Net realisable value (LCNRV)

Generally Inventory and land are the asset were value of asset didn't diminishes but value appreciation will occur in inventory & land.

Since due to historical cost principle & LCNRV, the asset is recorded at its purchase cost or NRV(for inventory), it is common that the book value of the inventory and land of an acquired company to be less than the fair values of these items.

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