Question

On December 31, 2018 Change Co. showed the following account balances in his general ledger: Land $330,000 Building and plant facilities 990,000 Machinery and equipment 975,000 During 2019, the following transactions occurred. 1. Land site A was acquired for $650,000 plus legal fees on closing of $40,000. 2. Land site B, with a building, was acquired for $720,000. The closing statement indicated that the land value was $500,000 and the building value was $300,000. Shortly after acquisition, the building was removed and sold to a third party for $50,000. A new building was constructed for $460,000, plus the following costs: Architectural design fees $45,000 Excavation fees 58,000 Imputed interest on company funds 25,000 The imputed interest represents the amount of interest that the company would have paid if it had borrowed money to construct the building. The building was completed and occupied at the end of November 2019. 3. A group of machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machine was $147,000, freight costs were $4,000, and royalty payments for 2019 were $12,000.

Required a. Prepare a schedule to determine the balance in each of the following balance sheet accounts at December 31, 2019:

i) Land [3.5 marks]

ii) Building and plant facilities [2.5 marks]

iii) Machinery and equipment [2 marks]

Disregard the related accumulate depreciation amounts.

b. List the item(s) in the problem that were not included in the accounts listed in part (a). Indicate where, or if, these items should be included in the company’s 2019 financial statements.

Answer 1

a (1)	Statement of calculation of land valuation
	Particulars	Amount
	Opening balance	$330000
	Add: Site A (including legal fees)	$190000
	Add: Site B	$500000
	Total land	$1020000
	In case, land and building were revalued at $500000 and $300000 but at the same
	time purchase cost is $720000 then again revaluation of $80000
	There is loss on scrapping of old building amount to $250000 when the building
	was raised and sold for $500000
2	Statement of calculation of building valuation
	Particulars	Amount
	Opening balance	$990000
	Add: new building($460000+$45000+$58000)	$563000
	Total building	$1553000
	Imputed interest is not capitalized because it is an estimate of borrowing
	charges
3	Statement of calculation of machinary and equipment valuation
	Particulars	Amount
	Opening balance	$975000
	Add: New equipment ($147000 + $4000)	$151000
	Total machinary and equipment	$1126000
	Royalty payment cannot be capitalized because it is an operational expense
b	In case, land and building were revalued at $500000 and $300000 but at the same
	time purchase cost is $720000 then again revaluation of $80000
	There is loss on scrapping of old building amount to $250000 when the building
	was raised and sold for $500000. Both of these to be shown as a part of other
	comprehensive income under realized gain and loss.
	Royalty payment is treated as expense in income statement because it is a periodical
	expense.