Reference no: EM133570

Question :

Snapper LTd starts a business that makes women's shoes. It performs a factory in an inner suburb of Perth. The factory has a large amount of equipment that is used in the manufacture of shoes. Snapper Ltd owns both the factory and the land on which the factory stands. The land was obtain in 2001 for $200 000 and the factory was built in that year at a cost of $ 520 000. Both assets are recorded at cost, with the factory having a carrying amount at 30 June 2010 of $ 260 000.

In current years there has been a property boom in Perth with residential house prices doubling such that the average price of a house is roughly $ 500 000. A recent valuation of the land on which the factory stands as performed by a property valuation group and based on current sales of land in the area has the land at a value of $ 1000 000. The land is now considered prime residential property provided its closeness to the city and, with its superb river views, its suitability for building executive apartments. It could cost $ 100 000 to demolish the factory to make way for these apartments to be built. It is evaluated that to build a new factory on the present site would cost around $ 780 000.

The directors of Snapper Ltd want to calculate both the factory and the land at fair value as at 30 June 2010

Show how you would measure these fair values

Word count: 300 words