Entity A receives 100 acres of land from Oil Entity. Oil Entity specifies that Entity A must use the land as a wildlife reserve. Entity A recognizes that similar restrictions would not apply to other companies if they used the land. Using the land as an oil field would maximize the fair value of the land. Should Entity A use the value of the land as a wildlife reserve or as an oil field to determine the fair value?
A) Wildlife reserve
B) Oil Field
C) Neither

Question

Quizplus · Accepted Answer

Entity A should use the value of the land as an oil field to determine the fair value because fair value is based on the highest and best use of the asset, which in this case is as an oil field.

Entity a Receives 100 Acres of Land from Oil Entity