What should the reported value of redevelopment properties not exceed?

The reported value of redevelopment properties should not exceed their net realizable value. Net realizable value represents the estimated selling price of the property in the ordinary course of business, minus any costs associated with the sale, such as commissions or legal fees. This measure is particularly relevant in cases where properties are being redeveloped or are not generating current income.

When valuing redevelopment properties, it is essential to focus on the net realizable value because it provides a more accurate and practical reflection of what the property can actually be sold for, taking into consideration the potential expenses involved in the sale. This ensures that the financial statements present a realistic and fair view of the asset’s worth, which is crucial for stakeholders assessing the financial health of the entity.

Other valuation measures, like book value or fair market value, may not account for current market conditions or the costs to sell, which could result in an inflated reported value. Historical cost is often outdated and does not reflect current market dynamics. In contrast, net realizable value offers a more dynamic and current evaluation method for redevelopment properties, aligning closely with the principles of conservatism in accounting.