Page 399 - SBR Integrated Workbook STUDENT S18-J19
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Answers
Example 3
Highest and best use
Land is a non-financial asset. The fair value of a non-financial asset should be
based on its highest and best use.
It would seem that market participants would buy the land and use it as the
site for residential properties. This use should therefore be factored in when
determining fair value.
The fair value of the land if developed for residential use is $4.5 million ($5m –
$0.5m). This represents the highest and best use because the fair value is
greater than if the land was kept for industrial use
As such, the fair value of the land is $4.5 million.
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