You are partner in charge of the audit of Shangri‑La, Inc. The company is a real estate developer, specializing in luxury vacation areas. The company's operations have been profitable, although not spectacular. Most of the development property is pledged as collateral for bank loans; there is a reasonable stockholders' equity of about $10,000,000.
Shangri‑La has a substantial investment in a large parcel of land in Key Biscayne, Florida. The company originally paid $25,000,000 for the property two years ago and has since capitalized an additional $5,000,000 in taxes and other carrying costs.
The property is zoned for single‑family homes, but Shangri‑La has been working diligently to have it rezoned for condominiums. As a site for condominiums, the property would be very valuable and the company has an appraisal to that effect. However, if sold as single‑family home sites, it probably would be worth no more than $15,000,000.
Shangri‑La management concedes 弃权 that their efforts at rezoning have met stiff local resistance, but they refuse to admit defeat. They are planning subtle social pressures on local political groups. Your audit inquiries confirm that the company has carried its rezoning campaign through the necessary legal steps and has been turned down each time. It will clearly be difficult to obtain rezoning for multifamily use but it is not clear that the job is impossible.
Your staff people on the engagement report real frustration 挫折on this matter. They have concluded that the client cannot be successful in its rezoning efforts, and, therefore, they have suggested that the land be written down 减低帐面价值 to $15,000,000. The client has obviously objected, arguing that any such adjustment prejudges their ability to do their job.
The treasurer 财务 takes the position that the uncertainty regarding the carrying...
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