| Course | GB791 Advanced Topics in Accounting |
|---|---|
| Unit | Unit 4 |
| Paper type | Measurement comparison |
| Length | About 1,100 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB791 Unit 4
One Building, Two Numbers: A Unit 4 Measurement Comparison of Cost and Fair Value for Investment Property
[Student Name]
Purdue University Global
GB791: Advanced Topics in Accounting
Unit 4 Measurement Comparison
[Instructor Name]
[Date]
The building, its tenants and every figure are composite and illustrative; the standards and studies cited are real.
Exhibit A: The Facts
The owner, a composite real estate company, bought the building in January 2020 for 84,000,000 dollars. Of that price, 14,000,000 dollars was allocated to land and 70,000,000 dollars to the building, which the company depreciates on a straight-line basis over forty years with no residual value. The building is fully leased to research tenants on long leases and produces net operating income of about 5,500,000 dollars a year, a figure that has been stable since acquisition. The company holds the building to earn rent, which makes it investment property under IFRS (International Accounting Standards Board [IASB], 2003).
Exhibit B: The Building Measured Two Ways
Under US GAAP. United States standards have no separate category for investment property held by an ordinary operating company. The building sits in property, plant and equipment, carried at what it cost minus the depreciation charged so far. Annual depreciation is 70,000,000 divided by 40, or 1,750,000 dollars. By December 31, 2024, five years of depreciation had accumulated, 8,750,000 dollars, leaving the building at 61,250,000 and the property, with land, at 75,250,000. By December 31, 2025, six years had accumulated, 10,500,000 dollars, leaving the building at 59,500,000 and the property at 73,500,000.
An impairment test is needed only when some event signals that the building's book amount might not be recovered. If one were triggered, its first step would set that book amount against the total, undiscounted, of the cash the property is expected to bring in. With net operating income of 5,500,000 a year on long leases, those undiscounted flows far exceed 73,500,000, so no impairment would be recognized.
Under IAS 40, fair value model. IAS 40 allows an entity to choose between the cost model and the fair value model for all its investment property. Under the fair value model, the property is revalued on every balance sheet date, each change runs through profit or loss, and depreciation stops. The company engages an external appraiser, who uses an income approach: net operating income divided by a market capitalization rate. At December 31, 2024, with a rate of 5.95 percent, the appraised value is 5,500,000 divided by 0.0595, or about 92,400,000 dollars. At December 31, 2025, as rates for laboratory property rose, the appraiser applied 6.25 percent, giving 88,000,000 dollars.
Because the capitalization rate is not directly observable in a market and depends on the appraiser's judgment about comparable transactions, the measurement falls at Level 3 of the fair value hierarchy under IFRS 13, and the company must disclose the rate used and the sensitivity of the value to changes in it.
Exhibit C: The Income Effects Side by Side
In 2025, both models report the same rental income, and both report the same operating expenses that produce the 5,500,000 dollars of net operating income. They differ in one line each.
Under US GAAP, the income statement shows depreciation of 1,750,000 dollars. Profit before tax from the building is therefore 3,750,000 dollars.
Under IAS 40, there is no depreciation. Instead, the income statement shows a fair value loss of 4,400,000 dollars, the fall from 92,400,000 to 88,000,000. Profit before tax from the building is therefore 1,100,000 dollars, about 2,650,000 dollars less than under US GAAP.
In 2024 the comparison had run the other way, because the capitalization rate had edged down during the year and the appraised value had risen, producing a fair value gain rather than a loss. Over the life of the building, the two models will tend toward the same cumulative result only if the building is sold, at which point the cost model recognizes the gain or loss at once.
The fair value model moves profit with the capitalization rate, which means the same building can report a gain one year and a loss the next with no change in its rent.
What Each Number Tells a Reader
The cost-model number, 73,500,000 dollars, tells a reader what the company paid less a systematic allocation of that cost. It is verifiable and it does not move with markets, but it says little about what the building is worth today. The fair value number, 88,000,000 dollars, is a current estimate of value, closer to what an investor in a real estate company wants to know, but it depends on an appraiser's choice of a rate that cannot be observed directly. A change of 0.3 percentage points in that rate moved the value by 4,400,000 dollars, about 5 percent.
What the Evidence Shows
Research on European real estate companies offers evidence about which number markets use. When IFRS became mandatory in the European Union in 2005, real estate companies had to either measure investment property at fair value or disclose its fair value. Muller et al. (2011) compared firms forced to begin providing fair values in 2005 with firms that had already provided them voluntarily. Bid-ask spreads, their measure of information asymmetry, fell more for the newly compelled firms, which suggests the fair value information was useful to investors. Yet those firms still had higher asymmetry than the voluntary group afterward, a gap the authors linked partly to the lower reliability of the fair values the compelled firms reported.
Christensen and Nikolaev (2013) studied the choice itself. Where firms in the United Kingdom and Germany could choose between cost and fair value, a large share chose fair value for investment property, but almost none chose it for ordinary property, plant and equipment. They interpreted the pattern as evidence that fair value is chosen where it can be measured reliably, as with rented buildings that have active markets, and where users, particularly lenders, value it.
The Question for This Course
The comparison does not show that one model is right. It shows what each model trades away. The cost model gives up relevance to gain reliability, and the fair value model gives up some reliability, in this case dependence on a Level 3 rate, to gain relevance. The research suggests that for investment property, where markets for comparable buildings exist and rents are contractual, investors find the fair value information useful, particularly when the estimates behind it are reliable. Whether US GAAP should allow a fair value option for investment property is a question the evidence informs but does not settle.
References
Christensen, H. B., & Nikolaev, V. V. (2013). Does fair value accounting for non-financial assets pass the market test? Review of Accounting Studies, 18(3), 734-775. https://doi.org/10.1007/s11142-013-9232-0
International Accounting Standards Board. (2003). Investment property (IAS 40). IFRS Foundation.
Muller, K. A., Riedl, E. J., & Sellhorn, T. (2011). Mandatory fair value accounting and information asymmetry: Evidence from the European real estate industry. Management Science, 57(6), 1138-1153. https://doi.org/10.1287/mnsc.1110.1339
GB791 Unit 4 instructions, in plain terms
Unit 4 of GB791 asks you to measure one asset or transaction under two accounting models and evaluate the results. Present the facts in an exhibit, including the price, the allocation between components and the cash flows. Measure the asset under each model at two dates, showing every calculation. Explain the conditions under which each model would require an impairment or a fair value change, and classify any fair value measurement in the hierarchy. Set the income effects side by side for the same year. Then explain what each number tells a reader and what it trades away. Bring in research on which measures investors price, describing what each study compared and found. Close with what the comparison does and does not show for the policy question. Five pages built on three exhibits is a common format.
How the GB 791 Unit 4 example is put together
Exhibit A gives the January 2020 purchase, the land and building split and stable net operating income. Exhibit B measures the building under the cost model at the end of 2024 and 2025 and shows why no impairment would arise, then measures it under IAS 40 using an appraiser's income approach and explains the Level 3 classification. Exhibit C shows profit of 3,750,000 under the cost model against 1,100,000 under fair value in 2025, and notes that 2024 had run the other way. The highlighted sentence describes the volatility the fair value model introduces. A section compares what each number tells a reader, and the evidence section describes the European mandatory adoption study and the UK and German choice study before a closing judgment.
Where the points sit in the GB791 Unit 4 rubric
GB791 instructors grade the measurement comparison on accuracy first. Every figure should be derivable from the stated facts, and an arithmetic slip costs more here than in most units. Applying each framework's impairment or remeasurement rules correctly is weighted heavily. Classifying the fair value measurement and naming the inputs it depends on shows command of the hierarchy. The side-by-side income effects should isolate the lines that differ. Explaining what each model trades, relevance against reliability, earns credit when tied to the numbers just computed. Research is valued when the paper says what each study compared and found rather than citing it as general support. A closing judgment that the comparison informs but does not settle the policy question shows calibration.
Common GB791 Unit 4 mistakes, and how to avoid them
Many GB791 measurement comparisons apply the right standards but skip steps, so a reader cannot check the numbers. Students often forget to separate land from building, depreciating the whole price. Impairment under the cost model is sometimes assumed whenever value falls, without the recoverability step. Fair value measurements are rarely classified in the hierarchy. Income effects are compared in totals, hiding which line drives the difference. Research is cited as proof that one model is better rather than for what it measured. Show every calculation, separate components, apply each model's rules, classify the measurement, compare line by line and describe the evidence precisely. Give us the asset and frameworks your section uses, and we can work the comparison for you.
Get a GB791 Unit 4 example written to your instructions
Name the asset or transaction under comparison and the two frameworks involved, then attach the Unit 4 prompt and rubric. The paper written for you measures it both ways with inputs shown, explains where and why the income effects diverge, and weighs relevance against verifiability with research behind it. First custom sample at no cost, generally within 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GB791 Unit 4 questions, answered
Why compare IAS 40 with US GAAP rather than two US GAAP methods?
Because the prompt usually sets two frameworks against one transaction, and investment property is where they differ most cleanly. IFRS lets an owner choose fair value through profit or loss; US GAAP generally requires cost for an operating company. If your section assigns a different pair, such as impairment reversals, the same exhibit structure carries over.
Is the building in the sample real?
No. The building is invented, its figures sized to show how a capitalization rate change moves an appraised value. The standards, the Level 3 classification and the cited research are real. Many sections prefer a real IFRS property company's filing, which discloses valuation inputs and sensitivity, and your paper can use one with the filing cited.
Where can I find a free GB791 Unit 4 sample paper?
A complete GB791 Unit 4 measurement comparison is on this page, carrying one building under the US GAAP cost model and the IAS 40 fair value model with three exhibits and market evidence.
Why does a higher capitalization rate lower the building's value?
The income approach divides net operating income by the rate. With income steady at 5,500,000 dollars, moving the rate from 5.95 to 6.25 percent cuts the appraised value from about 92,400,000 to 88,000,000.
Can a US company use fair value for its rental buildings?
An ordinary operating company generally cannot. US GAAP carries such buildings at cost less depreciation, tested for impairment, while IAS 40 lets an IFRS reporter choose fair value for all its investment property.