GV ANIKA A.

DIAMPOC BSA 2

Seat Work

Problem No. 2 Old Building Is Not To Be Demolished

On March 1, 2018, Levy Co. acquired land and building by paying P6,000,000 and assuming a
mortgage of P1,500,00. The building will be used by Levy Co. as its head office.

1 Cost of survey 50,000

2 Cost of paving parking lot adjoining building 50,000
3 Cost of option of the land not acquired 7,000
4 Broker’s fee on the properties acquired 10,000
5 Cost of relocating and reconstructing the property belonging to others in order 23,000
to acquire possession
6 Payment to real estate agent 40,000
7 Registration fees and transfer of title 13,000
8 Title insurance 15,000
9 Real property taxes on the land accrued after acquisition 5,000
10 Cost of shrubs, trees, and other landscaping 53,000
11 Unpaid real property taxes up to the date of acquisition assumed by the buyer 14,000
12 Driveway, parking bay and safety lighting 19,000
13 Payment for claim for injuries not covered by insurance 40,000
14 Cost of removing trees from the land 70,000
15 Salvage value of the timber recovered from the land 5,000
16 Renovation cost of the building 400,000
17 Payment of medical bills of employees accidentally injured during building 8,600
renovation
18 Special assessment by city for public improvement 30,000

Questions: Based on the above data, determine the adjusted cost of the following

CASE NO. 1: Assumed that on the date of the acquisition, the land and building have fair values of
P6,000,000 and P2,000,000 respectively.

1. Land

a. P7,790,600

b. P7,560,000

c. P7,760,000

d. P5,863,250

2. Old Building

a. P400,000

b. P2,296,750
 c. P2,357,350

d. P2,418,750

3. Land Improvements

a. P60,600

b. P61,400

c. P122,000

d. P182,600

CASE 1: SOLUTION

Land (75%) Building (25%) LI

(a)5,625,00 (b)1,875,00 -
0 0
1 Cost of survey 50,000
2 Cost of paving parking lot adjoining building 50,000
3 Cost of option of the land not acquired - - -
4 Broker’s fee on the properties acquired 7,500 2,500
5 Cost of relocating and reconstructing the 17,250 5,750
property belonging to others in order to
acquire possession
6 Payment to real estate agent 30,000 10,000
7 Registration fees and transfer of title 13,000
8 Title insurance 15,000
9 Real property taxes on the land accrued - - -
after acquisition
10 Cost of shrubs, trees, and other landscaping 53,000
11 Unpaid real property taxes up to the date of 10,500 3,500
acquisition assumed by the buyer
12 Driveway, parking bay and safety lighting 19,000
13 Payment for claim for injuries not covered - - -
by insurance
14 Cost of removing trees from the land 70,000
15 Salvage value of the timber recovered from (5,000)
the land
16 Renovation cost of the building 400,000
17 Payment of medical bills of employees - - -
accidentally injured during building
renovation
18 Special Assessment 30,000
TOTAL 5,863,250 2,296,750 122,000

Cost allocated to Land:

 6,000,000
(a) X 7,500,000=5,625,000
8,000,000
Cost allocated to Building

800,000
(b) X 7,500,000=1,875,000
8,000,000
CASE NO. 2. Assume that on the date of the building has a minimal fair value.

SOLUTION:

Land Building LI
7,500,000 -
1 Cost of survey 50,000
2 Cost of paving parking lot adjoining building 50,000
3 Cost of option of the land not acquired - - -
4 Broker’s fee on the properties acquired 10,000
5 Cost of relocating and reconstructing the 23,000
property belonging to others in order to
acquire possession
6 Payment to real estate agent 40,000
7 Registration fees and transfer of title 13,000
8 Title insurance 15,000
9 Real property taxes on the land accrued - - -
after acquisition
10 Cost of shrubs, trees, and other landscaping 53,000
11 Unpaid real property taxes up to the date of 14,000
acquisition assumed by the buyer
12 Driveway, parking bay and safety lighting 19,000
13 Payment for claim for injuries not covered - - -
by insurance
14 Cost of removing trees from the land 70,000
15 Salvage value of the timber recovered from (5,000)
the land
16 Renovation cost of the building 400,000
17 Payment of medical bills of employees - - -
accidentally injured during building
renovation
18 Special Assessment 30,000
TOTAL 7,760,000 400,000 122,000