Question

A company recently moved to a new building. The old building is being actively marketed for sale, and the company expects to complete the sale in four months. Each of the following statements is correct regarding the old building, except:
A. It will be reclassified as an asset held for sale.
B. It will be classified as a current asset.
C. It will no longer be depreciated.
D. It will be valued at historical cost.

Answer 1

Answer:

D. It will be valued at historical cost.

Explanation:

Building held for sale is classified as current asset and it will not be depreciated further as it will be sold in near future. It will be recorded on the lower of cost and fair market value of the building and appears on the balance sheet in current account section. So the statements is correct regarding the old building, except D. It will be valued at historical cost.

Answer 2

Answer:

D) It will be valued at historical cost.

Explanation:

A company must include under property, plant and equipment (PPE) assets that they are currently using, but those put on sale must be reclassified as assets held for sale. Since the company expects to close the sale within a four month period, it can include it under current assets. Also, assets that are held for sale are no longer depreciated, since they are not being currently used and probably another asset is replacing them.

The asset must also be recorded at the lower of its book value (historical cost - depreciation) or net realizable value (fair market value - selling costs).