Intrawest is a world leader in destination resorts and leisure travel. The company’s success formula starts with a resort and then builds an animated village with shops, hotels, convention facilities, and restaurants. Intrawest’s development of real estate properties has resulted in a significant portfolio of real estate holdings. By June 30, 2005, Intrawest’s assets included resort properties with a carrying amount of US$ 791.8 million, representing the costs incurred by the company to acquire land and build its resort properties. In contrast, financial analysts estimated the market value of these properties at amounts ranging from US$ 1.12 billion to US$ 1.70 billion. In fact, analyst Michael Smith of National Bank Financial estimated the market value of Intrawest’s real estate at US$ 1.12 billion compared to an estimate of US$ 1.45 billion by Pirate Capital. However, both of these estimates were lower than a third estimate by Mark Hill of JMP Securities, who values these properties at US$ 1.70 billion.
Required:
1. Assume the role of an auditor of Intrawest’s financial statements. Which of these four values would you advise the company’s management to report on its statement of financial position at June 30, 2005? Justify your reasoning.
2. Assume the role of an investment broker who is advising a client about the purchase of Intrawest’s resort properties. Which value would you use as a basis for your recommendation to your client and why?