Kiro Corporation acquired a real estate located in Manila City at the beginning of 2020 for a total acquisition cost of P6M. 10% of the acquisition cost is attributed to an existing building which Kiro Corporation intends to demolish to give way for the construction of a new 20-storey hotel building. The company incurred the following additional costs up to January of 2021, when it commenced the operation of the property: Demolition costs 90,000 Real property taxes covering the periods (2019 and 2020) 60,000
Kiro Corporation acquired a real estate located in Manila City at the beginning of 2020 for a total acquisition cost of P6M. 10% of the acquisition cost is attributed to an existing building which Kiro Corporation intends to demolish to give way for the construction of a new 20-storey hotel building. The company incurred the following additional costs up to January of 2021, when it commenced the operation of the property:
Demolition costs 90,000
Real property taxes covering the periods (2019 and 2020) 60,000
Special assessment by the city government of Manila for road and
sewerage improvements 120,000
Real estate broker's fees and commission 80,000
Architects and Engineers Fees 200,000
Construction costs paid to a 3rd party contractor (Audit note A) 5,000,000
Interest on loan incurred specifically to finance the construction
(Audit note B) 600,000
Audit notes:
- The construction commenced on March 1, 2020 where the term of payment to the construction company was 50% on March 1. 20% on August 1 with the balance upon completion on December 31. 2020.
- The construction loan was signed and the 6M proceeds were received on January, 2020. The 3-year loan had a nominal interest of 10% payable annually every December 31.
- At the beginning of 2021 the company started operating the building as a hotel and casino. The first 4 floors of the building was leased out to an independent casino operator. Kiro Corporation has no further involvement in the Casino. The rest of floors are operated by Kiro Corporation as hotel.
- The building has an estimated 20-year useful life. By the end of 2021, the fair market values of the Land and Building were at P8M and 6M, respectively.
Requirements:
Assuming Cost Model is used, what is the carrying value of the Land? Assuming Cost Model is used, what is the carrying value of the Building? Assuming FV Model is used, what is the carrying value of the Land? Assuming FV Model is used, what is the carrying value of the Building?
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