Question

On March 1, 2018, Beldon Corporation purchased land as a factory site for $72,000. An old building on the property was demolished, and construction began on a new building that was completed on December 15, 2018. Costs incurred during this period are listed below:

Demolition of old building	$	5,000
Architect’s fees (for new building)		11,000
Legal fees for title investigation of land		8,000
Property taxes on land (for period beginning March 1, 2018)		4,200
Construction costs		620,000
Interest on construction loan		6,000

Salvaged materials resulting from the demolition of the old building were sold for $3,200.

Required:
Determine the amounts that Beldon should capitalize as the cost of the land and the new building.

Answer 1

1)Calculation of the Capitalize cost of the land :

Particulars	Amount $
Land	$72,000
Demolition of old building	$5,000
Legal fees	$8,000
Salvaged materials	($3,200)
Cost of Land	$81,800

note:

Property taxes are operating expenses they are not capitalized

2)Calculation of the Capitalize cost of the New Building :

Particulars	Amount $
Construction costs	$620,000
Interest on construction loan	$6,000
Architects fees	$11,000
Cost of New Building	$637,000