Question

Exercise 18.1 Determining the elements that make up the cost of an asse LO 18-1 The following costs were incurred by Imports Auto Parts in connection with the construction o retail store building: Cost of land, including $18,400 of legal costs Cost to demolish old building Costs of grading land for building site Costs related to building construction Legal costs relating to building permits Costs of paving parking lot $340,000 18,450 10,600 890,000 16,825 94,000 1 & 2. What are the capitalized cost of the land and new building? New Building + Purchase price of land Demolition cost of old building Cost to level building site Cost to construct building Legal costs related to building Costs of paving parking lot Total capitalized cost Land $ 340,000 18,450 10,600 890,000 16,825 94,000 $1,369,875 S

Answer 1

The following is the Capitalised cost of the Land and New Building.

Particulars	Amount $	Amount $
Purchase of Land	3,40,000	0
Demolishion of Old building	0	18450
Cost to level builidng site	0	10,600
Cost to contruct builiding	0	8,90,000
Legal costs related to building	0	16,825
Cost of paving parking lot		94,000
Total	3,40,000	10,29,875

In Accounting Land and Builidng are seperately recognised in the books of accounts as they are distinguishable with respect to cost and benefits expected in future.

Here Purchase of land is directly attributable to Land cost.

Demolishion of old building is very much required for the contruction of New builiding, hence you should capitalise the above cost to the value of building.

If intention of leveling building site is to preparing land for contrution of building then it should be capitalised to the value of building.

Cost of Contruction direct,legal costs related to the building and cost of paving parking lot are directly attibutable cost to the building.