Old Room Co. purchased land and building for a lump-sum price of ₱48,000,000. The existing building will be demolished and a new building will be constructed. Old Room incurred the following additional costs: Title guarantee 80,000 Option paid for the land and old building acquired 24,000 Payments to tenants to vacate premises 48,000 Cost of razing the old building 240,000 Construction cost of new building (completed) 34,000,000 The land and old building have fair values of ₱20,000,000 and ₱40,000,000, respectively.
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.
- Old Room Co. purchased land and building for a lump-sum price of ₱48,000,000. The existing building will be demolished and a new building will be constructed. Old Room incurred the following additional costs:
|
Title guarantee |
80,000 |
|
Option paid for the land and old building acquired |
24,000 |
|
Payments to tenants to vacate premises |
48,000 |
|
Cost of razing the old building |
240,000 |
|
Construction cost of new building (completed) |
34,000,000 |
- The land and old building have fair values of ₱20,000,000 and ₱40,000,000, respectively.
- Some salvaged wood planks from the demolition were used as wall panels in the new building. Old Room estimates that the salvaged wood planks have a fair value of ₱120,000. The other salvaged materials were sold for ₱60,000.
What amount of the costs above is charged as expense?
- 48,000 c. 32,048,000
- 32,000,000 d. 0
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
