The question of entering on the books of account actual or supposed increases in value of real estate before they are realized, is one which accountants are frequently forced to consider. It is obvious that no such increase of assets should be allowed on mere hearsay evidence, or on the personal opinion of an individual.

In those cases where the claim for an enhanced value is supported by the report of properly qualified appraisers, or by a bona fide offer of purchase, it is sometimes considered advisable to show this increase on the balance sheet, where it may be the proper foundation for an increase in a line of credit or in the Surplus account, or possibly it may warrant the issuance of a stock dividend. It can seldom, if ever, be properly included in Profit and Loss account, and it cannot afford a proper basis for the declaration of a cash dividend; for, in the case of a mercantile or manufacturing concern, land is usually held incidentally, as it were, and its increase in value is not profit arising out of the operation of the business. Such a profit would be the proper basis for dividends, but an increase in real estate values would not ordinarily be so - unless these profits were actually realized.

As an argument for making entries showing enhanced values, it is sometimes stated that property carried on the books at a certain figure is covered by a mortgage securing an amount greater than its original cost. Even if such were the case, it merely shows that another person had faith in the concern and loaned money to it, accepting the property as security. The concern did not realize on the value and its treasury did not receive it.