Answer to Question #208274 in Accounting for cdba

Question

On July 1, 2021, Ria Co. purchased a ₱400,000 tract of land that is interested to be the site of a new office complex. Ria incurred additional cost and realized salvage proceeds during 2021 as follows:

Demolition of the existing building on site 75,000

Legal and other fees to close escrow 12,000

Proceeds from sale of demolition scrap 10,000

Based on the above data, answer the following:

1. Assume that the new office building is to be constructed right away, how much is the cost of the land?

2. Assume that the new office building is to be constructed next year, how much is the cost of the land?

Answer 1

Part a

Part b

Assets are originally recorded at their purchase price and another attributable cost. The cost comprises the tax paid on the assets, such as VAT, legal expenses for an attorney, delivery, installation, site preparation, and professional services, such as architect fees. To arrive at a final cost figure, any money received from testing the asset or incidental asset installation is subtracted.

In the preceding example, the land cost of $400,000 is added to the demolition cost of $75,000, plus the legal costs of $12,000, for a total cost of $487,000, from which the proceeds from demolition scrap sales of $10,000 are removed for a total cost of $477,000.