Valuation Premise for Measurement of Fair Value

instructions:

Read the following case and discuss the question below:

Heel Ltd is a manufacturer of women's footwear. It operates a factory in a major European city's inner suburb. The factory contains a significant quantity of equipment used to manufacture shoes. Both the factory and the land on which it rests are owned by Heel Ltd$.$ In $2005,$ the land was purchased for $200,000$ and the factory was constructed for $520,000.$ Both assets are documented at cost$,$ with the factory carrying a value of $260000$ as of $30$ June $2016.$

In recent years, the city has experienced a real estate surge, with residential house prices doubling to an average of approximately $500,000.$ The land on which the factory sits was recently appraised by a property valuation group based on recent land sales in the area. The property was valued at $1,000,000.$ The site is now considered prime real estate due to its proximity to the city center and its river views, which make it suitable for the construction of executive apartments. It would cost $100,000$ to dismantle the factory in order to construct these apartments. The construction of a new factory on the current site is estimated to cost approximately $780,000.$

The directors of Heel Ltd wish to determine the reasonable market value of both the factory and the land as of $30$ June $2016.$

$$ Discuss how you would quantify these fair values.