Exercise 7-6

The initial value to be assigned to an asset is not always obvious. A city acquired general capital assets as follows:

It purchased new construction equipment. List price was $400,000, but the city was granted a 10 percent government discount. The city also incurred 412,000 in transportation costs and paid $4,000 to its own employees to customize the equipment.

It received a donation of land to be set aside for a nature preserve. The land had cost the donor $300,000. At the time of the contribution it was valued on the citys tax rolls at $1.7 million. However, independent appraisers estimated its fair market value at $1.9 million.

It constructed a new maintenance facility at a cost of $2 million. During the period of construction, the city incurred an additional $110,000 in interest on funds borrowed to finance the construction.

Indicate the value that the government should assign to these assets. Justify briefly the value you assigned and, as appropriate, indicate any other acceptable alternatives.