CHAPTER 26: LAND, BUILDING AND MACHINERY

The following costs were incurred by Patrick & Friends Company in connection with
building a new home office:

Land cost 3,000,000

Legal fees 8,000
Settlement of the mortgage on the land
and associated interest payable upon sale 60,000
Settlement of overdue property taxes 15,000
Expense associated with demolishing
the apartment building 40,000
Funds obtained from the sale
of reclaimed materials 6,500
Land site grading and drainage
arrangements 20,000
Architectural fees for a new
construction project 250,000
Compensation for the construction contractor 7,000,000
Interest expenses related to particular loans incurred
during the construction phase 350,000
Settlement of medical expenses for employees accidentally
injured during the inspection of building construction 11,000
Expense associated with paving the driveway and parking area 45,000
Expenditure for trees, shrubs, and additional landscaping elements 65,000
Expense related to the installation of lights in the parking lot 7,000
Expense for a celebratory open house event marking
the opening of the building 50,000
1. What is the cost of the land?
2. What is the cost of building?
3. What is the cost of land improvement?
 SOLUTION

Land cost 3,000,000

Legal fees 8,000
Settlement of land mortgage 60,000
Settlement of overdue property taxes 15,000
Grading and drainage 20,000
Total Cost of Land 3,103,000

Net Demolition Cost (40,000 – 6500) 33,500

Architectural fees 250,000
Compensation for contractor 7,000,000
Interest expenses to particular loans incurred 350,000
Total cost of new building 7,633,500

Expense with paving the driveway & parking area 45,000

Expenditure for trees, shrubs, & landscaping elements 65,000
Expense related to the installation of lights 7,000
Total cost of land improvement 117,000

Note : The Settlement of medical expenses for employees accidentally

injured during the inspection of building construction and expense for a
celebratory open house event marking should be treated as outright
expense.