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Criticize current GAAP in accounting for land

Criticize current GAAP in accounting for land.

Does it cause problems in financial analysis? Explain.

Solution Preview

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 ...

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.