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cost of $2 million in the financial statements of Brampton. On the basis that the land is used as a car park then it is estimated that it has a value of $3 million. If the land were to be sold, then a buyer might be expected to pay $10 million because of the development potential.

Required

Explain the fair value of the land that Brampton will recognise.

Answer: Brampton

Fair value in the context of an asset is the amount that the asset can be sold for in an orderly transaction between market participants at the measurement date. With a non-financial asset – like land – in arriving at the fair value it is necessary to consider alternative legal uses in order to arrive at the best price.

That Brampton has no plans to sell the land and uses it as a car park is therefore not relevant to determining its fair value. On the open market the land would be valued with its development potential in mind.

In the group accounts, the fair value of this land at the date of acquisition is $10 million. This results in a fair value adjustment of $8 million and in effect reduces the measurement of any goodwill that arises.

• Tom Clendon is an online ACCA SBR lecturer. See www.tomclendon.co.uk He loves WhatsApp (07725 350793) to communicate direct with his students