3. On February 1, 2019, Tak Co. purchased a land and building for 10,000,000 as a factory site. The old building was unusable and demolished. Construction began on a new building which was completed on November, 2024. The fair value of the land and old building were 9,500,000 and 500,000, respectively. Additional costs incurred are: Demolition of old building P 500,000 Proceeds from sale of salvaged materials 80,000 Architect's fees 250,000 Legal fees for title investigation and purchase contract 50,000 Income earned on a vacant space rented as parking lot during conctruction 15.000

3. On February 1, 2019, Tak Co. purchased a land and building for 10,000,000 as a factory site. The old building was unusable and demolished. Construction began on a new building which was completed on November, 2024. The fair value of the land and old building were 9,500,000 and 500,000, respectively. Additional costs incurred are: Demolition of old building P 500,000 Proceeds from sale of salvaged materials 80,000 Architect's fees 250,000 Legal fees for title investigation and purchase contract 50,000 Income earned on a vacant space rented as parking lot during conctruction 15.000

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter8: Depreciation, Cost Recovery, Amortization, And Depletion

Section: Chapter Questions

Problem 38P

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At the end of 2020, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2015 when it should have been treated as a cost of production equipment installation costs. As a result of the misclassification, the depreciation through 2018 was understated by 110,000, and depreciation for 2019 was understated by 90,000. What would be the consequences of correcting for the misclassification of the property cost? a. The taxpayer uses the FIFO inventory method, and 25% of goods produced during the period were included in the ending inventory. b. The taxpayer uses the LIFO inventory method, and no new LIFO layer was added during 2019.
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