The land on which our buildings stand may have high potential value in the current real estate market. So what does that mean when we are valuing a non-monetary asset? Does the strength of a company lie in the fact that it could sell its site land for more than its cost or does the strength of a company lie in its ability to carry out its day to day operations? Needless to say, the market values of most buildings can also be quite meaningless and misleading when ascertaining the worth of a company; often these buildings are built for a specific purpose. If a companies’ worth is of growing concern, it will not usually sell its building or land unless it is going out of business. Sometimes structures are appraised by a process of finding the present cost of the kinds of materials and labor that were generally expanded in their constructions, but such a procedure may result in a very poor representation of the current value of the structure. Companies will sometimes get an appraisal of a building or land to borrow against the building for a loan, but this does not concern accounting.
This is a very general preliminary look at the subject of asset valuation, but it is intended to warn accountants and accounting students, that in most cases when dealing in the subject of asset valuation, you will be dealing with accounting data that are historical cost and not up to date. The argument for for cost can be expressed quite simply. First there is no satisfactory means of determining current costs or current market value of most non-monetary assets economically on a continuous basis; second, the essence, if not the quintessence, of profit determination lies in the matching of cost against revenue.