Question

On December 31, 2018 Change Co. showed the following account balances in his general ledger: Land $330,000 990,000 975,000 Building and plant facilities Machinery and equipment 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: $45,000 58,000 25,000 Architectural design fees Excavation fees Imputed interest on company funds 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.

Answer 1

a

Particulars	Land ($)	Building and plant facilities ($)	Machinery and equipment ($)
Balance as on 31 December 2018	330,000	990,000	975,000
Land at site A acquisition cost	650,000	-	-
Legal fees - capitalised	40,000	-	-
Fair value of land at site B acquired as per IAS 16	500,000	-	-
Fair value of building at site B acquired as per IAS 16	-	300,000	-
Carrying value of Building sold	-	(300,000)	-
Construction of new building	-	460,000	-
Architectural design fees - capitalised	-	45,000	-
Excavation Fees - capitalised	-	58,000	-
Invoice Price of machine	-	-	147,000
Freight costs - forms part of cost	-	-	4,000
Balance as on 31 December 2019	1,520,000	1,553,000	1,126,000

b

Particulars	Amount ($)	Treatment
Imputed interest on company funds	25,000	The same is not capitalised as this is just a notional cost, i.e., the cost that company would have paid if money would have been borrowed. It shall not be shown anywhere in the accounts
Royalty payments	12,000	The same shall be expense as royalty payment is not part of cost of machine, hence can not be capitalised. It shall be shown in Profit and Loss Account (Expense)