Question

The following costs were incurred on the construction of a new building for X Inc: Land $800,000 Clearing and grading 50,000 closing costs 25,000 architect fees 25,000 building permits 10,000 building costs 1,965,000 paving and sidewalks 60,000 landscaping 40,000 property tax lien 25,000 X Inc took out a construction loan to cover the entire project at the same time the land was purchased. Three month after the land was purchased, the construction on the building began. The construction period took twelve more month. Total interest costs for the entire loan were $300,000. Required: 1) calculate the costs of the land, buildings and land improvements, including the amount of capitalized interest on the building 2) If an independent constructor could have completed the building costs for $100,000 less than costs incurred by X Inc, would you adjust the fair market value of the building? Explain

Answer 1

1) Costs of Land, Buildings and land improvements-

Land 800000

Clearing and Grading 50000

Closing costs 25000

Architect fees 25000

Building Permits 10000

Building cost 1965000

Paving and sidewalks 60000

Landscaping 40000

Property tax 25000

Interest on Loan 300000

Total 3300000

2) If an independent constructor could have completed the building cost for $100000 than also FMV of similar property would have been same. The lesser incurred cost is profit to independent constructor.