Borrowing cost (IAS-23) If the acquisition/construction of asset is financed through borrowings then any interest paid on such debt would be capitalized in the value of asset. Test your understanding.3 Acquisition Costs of Realty: Pollachek Co. purchased land as a factory site for $450,000. Process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering fim for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction. Required: Determine the cost of the land and the cost of the building as they should berecorded on the books of Pollachek Co. Assume that the land survey was for the building.
Borrowing cost (IAS-23) If the acquisition/construction of asset is financed through borrowings then any interest paid on such debt would be capitalized in the value of asset. Test your understanding.3 Acquisition Costs of Realty: Pollachek Co. purchased land as a factory site for $450,000. Process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering fim for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor's charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction. Required: Determine the cost of the land and the cost of the building as they should berecorded on the books of Pollachek Co. Assume that the land survey was for the building.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Borrowing cost (IAS-23)
If the acquisition/construction of asset is financed through borrowings then any interest paid on such debt
would be capitalized in the value of asset.
Test your understanding.3
Acquisition Costs of Realty: Pollachek Co. purchased land as a factory site for $450,000. Process of
tearing down two old buildings on the site and constructing the factory required 6 months, The company
paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of
$1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an
engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be
made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability
insurance premium paid during construction was $900. The contractor's charge for construction was
$2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and
$1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.
Required:
Determine the cost of the land and the cost of the building as they should berecorded on the books of
Pollachek Co. Assume that the land survey was for the building.
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