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Criticize current GAAP in accounting for land

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Criticize current GAAP in accounting for land.

Does it cause problems in financial analysis? Explain.

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Solution Summary

The solution presents four issues relating to the GAAP treatment of the value of land on the financial statements. There is a short paragraph with examples to explain each of the four issues.

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Land is a tangible asset and does present several problems with a GAAP balance sheet. In general, the issues relate to value, classification, shareholder value and intent.

Value: The accounting convention of historical cost states that long term assets shall be presented at cost, not fair market value. For a company which holds land, the balance sheet becomes more and more distorted from the truth the longer land is held, or if land is a large asset on the balance sheet. Other long-term assets such as plant, property and ...

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