Question

Eton Corporation purchased land in 1998 for $190,000. In 2018, it purchased a nearly identical parcel of land for $430,000. In its 2018 balance sheet, Eton valued these two parcels of land at a combined value of $860,000. Reporting the land in this manner violated the:

Answer 1

Available options are:

A) Cost principle.

B) Principle of the business entity.

C) Objectivity principle.

D) Going-concern assumption

Answer:

Option A Cost Principle          

Explanation:

The cost principle says that the asset must be recorded at the amount that it costs in past to company. However IAS 16 Property, Plant & Equipment says that the land must not be depreciated because the life of the land is unlimited. Furthermore, revaluing asset is against the cost principle because it increases its value above the past cost of the asset. Hence the correct option here is cost principle.