Land and building exercises

Problem 1.

Gale company purchased land for P2,000,000 as a plant site. There was a small office building on the
land with fair value of P700,000 which the entity will continue to use with some modification and
renovation.

The entity decided to construct a factory building and incurred the following costs:

Land Building Factory

Building
Purchase Price 1,300,000 700,000
Materials and Supplies 3,000,000 3,000,000
Excavation 100,000 100,000
Labor on Construction 2,500,000 2,500,000
Cost of remodeling old office building 200,000 200,000
Imputed interest on corporation’s own money used 120,000
during construction
Cash discounts on materials purchased 60,000 (60,000)
Supervision by management during construction 70,000 70,000
Compensation insurance premiums for workers 20,000 20,000
Payment of claim for injuries not covered by 25,000
insurance
Clerical and other expenses during construction 30,000 30,000
Paving of streets and sidewalks 40,000
Plans and specifications 140,000 140,000
Legal cost of conveying land 10,000 10,000
Legal cost of injury claim 15,000
Saving on construction 200,000
1,310,000 900,000 5,800,000

1. What is the cost of the land?

a.1,310,000 b.1,300,000 c.1,350,000 d. 1,410,000

2. What is the cost of office building?

a.700,000 b.900,000 c.950,000 d.850,000

3. What is the cost of factory building?

a.5,720,000 b.5,800,000 c.5,920,000 d.5,600,000
Problem 2

Enchantment Company incurred the following expenditures related to land and building:

Land Building
Cash paid for land and dilapidated building 1,000,000 1,000,000
Removal of old building to make room for construction of a new 50,000 50,000
building
Payment to tenants for vacating old building 15,000 15,000
Architect fee for new building 200,000 200,000
Building permit for new construction 30,000 30,000
Fee for title search 10,000 10,000
Survey before construction of new building 20,000 20,000
Excavation before new construction 100,000 100,000
New building constructed 6,000,000 6,000,000
Assembly by city for drainage project 5,000 5,000
Cost of grading, leveling and landfill 45,000 45,000
Driveways and walks to new building from street (part of 40,000 40,000
building plan)
Temporary quarters for construction crew 80,000 80,000
Temporary building to house tools and materials 60,000 60,000
Cost of changes during construction to make new building more 50,000 50,000
energy efficient
Cost of windows broken by vandals 25,000
1,080,000 6,625,000

1. What is the cost of land?

a.1,145,000 b.1,215,000 c.1,130,000 d.1,080,000

2. What is the cost of new building?

a.6,625,000 b.6,575,000 c.6,585,000 d.6,560,000