Property, plant and equipment

Topic Problems
Capitalizable costs 19-3
Acquisition 19-7
Subsequent expenditures 19-14
Borrowing cost 19-18
Depreciation 19-35
Government Grants 19-40

Problem 19-3

Scenario: Old building is usable but likely to be demolished right away

Purchase price AND common costs- allocate to land and building using relative FV, the allocated co
the building is charged to loss
Net demolition costs- New building

CASE 1 Land Old building New building Land Impr.

Purchase price 8,750,000 1,250,000
1 12,250 1,750
2 17,500 2,500
3 12,000
4 9,625 1,375
5 20,125 2,875
6 35,000 5,000
7 2,625 375
8 11,000
9 70,000
10 60,000
11 50,000
12 600,000
13 30,000
14
15 8,750 1,250
16
17 50,000
18 220,000
19 11,000
20 35,000
21 9,800
22 33,000
23 (4,000)
Total 8,936,875 1,265,125 1,056,800 50,000
C B D B

Scenario: Old building is unusable and has minimal FV

Purchase price AND common costs- allocated and charged to land
Net demolition costs- new building
CASE 2
Total 10,202,000 0 1,056,800 50,000
B A D B