An entity purchases a rental property for $10 000 000 as an investment. The building is fully rented, and is in a prosperous area. At the end of the current year, the enterprise hires an appraiser who reports that the fair value of the building is “$15 000 000 plus or minus ten per cent”. Depreciating the building over 50 years would reduce the carrying amount to $9 800 000.
a. What are the relevance and reliability accounting considerations in deciding how to measure the building in the entity’s financial statements?
b. Does the Conceptual Framework lead clearly to measuring it at $15 000 000? Or at $9 800 000? Or at some other amount?