What are the costs of Land and Building, respectively? Apply the principles prior to the amendments to PAS 16 that is effective on January 1, 2022.
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.
The following expenditures were incurred by an entity during 2021. A piece of land with a dilapidated building was acquired and immediately construction of a new building began. Upon completion of the building, the entity acquired several pieces of machinery for use in its operations.
Cash paid on purchase of land-P4,500,000
Mortgage assumed on the land bought-P5,000,000
Legal fees and title verification expenses-P50,000
Payment to squatters on the property to vacate the premises
-P100,000
Demolition costs incurred-P80,000
Proceeds from sale of salvaged materials-P45,000
Paid to contractor for a building erected-P12,000,000
Building permit fees-P20,000
Excavation expenses-P50,000
Architect’s fees-P150,000
Capitalized interest cost on building constructed-P18,000
What are the costs of Land and Building, respectively? Apply the principles prior to the amendments to PAS 16 that is effective on January 1, 2022.
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