Acquisition Cost The following cases are independent. Case A Starling Ltd. bought a building for $1,920,000. Before using the building, the following expenditures were made: Repair and renovation of building $ 197,000 Construction of new paved driveway 30,400 Upgraded landscaping 4,500 Wiring 25,000 Deposits with utilities for connections 2,650 Sign for front and back of building, attached to roof 13,200 Installation of fence around property 18,400 Case B Lark Company purchased a $38,000 tract of land for a new manufacturing facility. Lark demolished an old building on the property and sold the materials it salvaged from the demolition. Lark incurred additional costs and realized salvage proceeds as follows: Demolition of old building $ 33,550 Routine maintenance (mowing) done on purchase 2,650 Proceeds from sale of salvaged materials 15,350 Legal fees 13,600 Title guarantee insurance 6,050 Required: 1. What balance would Starling report in the building account? 2. What balance should Lark report in the land account? What balance should Starling report in the Land improvements account?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Acquisition Cost
The following cases are independent.
Case A Starling Ltd. bought a building for $1,920,000. Before using the building, the following expenditures were made:
| Repair and renovation of building | $ | 197,000 |
| Construction of new paved driveway | 30,400 | |
| Upgraded landscaping | 4,500 | |
| Wiring | 25,000 | |
| Deposits with utilities for connections | 2,650 | |
| Sign for front and back of building, attached to roof | 13,200 | |
| Installation of fence around property | 18,400 | |
Case B Lark Company purchased a $38,000 tract of land for a new manufacturing facility. Lark demolished an old building on the property and sold the materials it salvaged from the demolition. Lark incurred additional costs and realized salvage proceeds as follows:
| Demolition of old building | $ | 33,550 |
| Routine maintenance (mowing) done on purchase | 2,650 | |
| Proceeds from sale of salvaged materials | 15,350 | |
| Legal fees | 13,600 | |
| Title guarantee insurance | 6,050 | |
Required:
1. What balance would Starling report in the building account?
2. What balance should Lark report in the land account? What balance should Starling report in the Land improvements account?
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