On July 1, 2016, Drenz Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below: Purchase price 925,000 Title Insurance 7,500 Legal fees to purchase land 5,000 Cost of razing old building on lot 42,500 Proceeds from sale of salvageable materials (6,000) Property taxes, January 1, 2016 - June 30, 2016 15,000 Cost of grading and filling building site 45,000 Cost of building construction 3,100,000 Interest on construction loan 60,000 Cost of constructing driveway 400,000 Cost of parking lot and fencing 60,000 Compute for the cost of the land?
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.
On July 1, 2016, Drenz Inc. purchased land and incurred other costs relative to the construction of a new warehouse. A summary of economic activities is listed below:
Purchase price 925,000
Title Insurance 7,500
Legal fees to purchase land 5,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials (6,000)
Property taxes, January 1, 2016 - June 30, 2016 15,000
Cost of grading and filling building site 45,000
Cost of building construction 3,100,000
Interest on construction loan 60,000
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Compute for the cost of the land?
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