A parent corporation transfers a property to its subsidiary at accounting book value, without independent market-price negotiation. What best characterizes its appraisal evidence?
Correct Answer
D) It is a related accounting transfer requiring market-evidence scrutiny
This is a related-party accounting transfer. Verify whether its price and circumstances provide relevant evidence for the defined market-value problem; book value alone does not establish market value. Confirmation proves neither independent bargaining nor a market adjustment amount. No universal corporate-transfer discount or automatic reliability ranking follows.
Why This Is the Correct Answer
Option D is correct because this is a related-party accounting transfer, and market value is unlikely to equal book value from accounting records. The appraiser must verify whether the price and circumstances offer any relevant market evidence before relying on it.
Why the Other Options Are Wrong
Option A: The book amount is market value whenever the parent confirms it
Option A says the book amount is market value whenever the parent confirms it. Confirmation of an accounting figure does not show independent bargaining, and book value is not the same as market value.
Option B: It is the most reliable competitive comparable in the data set
Option B calls it the most reliable competitive comparable in the data set. A related-party transfer at book value without market negotiation is among the least reliable indicators, not the most reliable.
Option C: It becomes market evidence after a fixed corporate-transfer discount
Option C says it becomes market evidence after a fixed corporate-transfer discount. No standard fixed discount converts such a transfer into a market sale; any adjustment would need market support.
Book value isn't market value
Accounting books record history, while market value reflects what a typical buyer would pay today.
How to use: Use this whenever a stem mentions book value or an intercompany transfer.
Exam Tip
Related-party and non-negotiated transfers call for scrutiny; be wary of answers that treat them as reliable or fix them with a set percentage.
Common Mistakes to Avoid
- -Treating recorded book value as market value
- -Applying an arbitrary discount to a related-party transfer
- -Using intercompany transfers without verifying their circumstances
Concept Deep Dive
Analysis
This question tests how to treat an intercompany transfer at book value. A transfer between related corporations without market negotiation is not reliable market evidence on its face, so it must be scrutinized rather than accepted or adjusted by formula.
Background Knowledge
Book value reflects accounting entries such as historical cost less depreciation, not what buyers and sellers would pay. Transfers between related entities may not involve market exposure or independent negotiation, so they require careful verification before being used as comparables.
Real-World Application
While researching industrial sales, an appraiser finds a deed transferring a warehouse from a corporation to its subsidiary. Learning it was recorded at book value with no marketing, the appraiser excludes it from the comparables after documenting why it is not market evidence.
More Sales Comparison Questions
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