Fullerton Waste Management purchased land and a warehouse fo

Fullerton Waste Management purchased land and a warehouse for $640,000. In addition to the purchase price, Fullerton made the following expenditures related to the acquisition: broker’s commission, $34,000; title insurance, $5,000; miscellaneous closing costs, $8,000. The warehouse was immediately demolished at a cost of $22,000 in anticipation of the building of a new warehouse.

Determine the amounts Fullerton should capitalize as the cost of the land and the building.

Solution

General rules for capitalization

the initial cost of an assets include the purchase price and all the expenditure necessary to bring the assets to its Desire conditions and location for use

1. Purchase price

2. Taxes

3. Fees

4. Delivery cost

5. Cost to adopt to intend used

6. Installation cost

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Capitalized cost of land = 709000

Purchase cost = 640000

+ Broker Commission = 34000

+ Title insurance = 5000

+ Miscellaneous closing cost = 8000

+ Demolised cost =22000

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Total 709000

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Capitalised cost of building = 0 (Nil)

all the expenditures including the cost of demolished old buildings are included in initial cost of land