Question

Bolster Equipment Ltd. wanted to expand into New Brunswick and was impressed by the provincial government’s grant program for new industry. Once it was sure that it would qualify for the grant program, it purchased property in downtown Saint John on June 15, 2017. The property cost $239,000 and Sheridan spent the next two months gutting the building and reconstructing the two floors to meet the company’s needs. The building has a useful life of 20 years and an estimated residual value of $65,800. In late August 2017, the company moved into the building and began operations. Additional information follows:

1.		The property was assessed at $195,000, with $155,000 allocated to the land.
2.		Architectural drawings and engineering fees related to the construction cost $18,000.
3.		The company paid $17,700 to the contractor for gutting the building and $108,000 for construction. Sheridan expects that these improvements will last for the remainder of the life of the building.
		4. The provincial government contributed $73,500 toward the building costs. Assuming that the company uses the cost reduction method to account for government assistance, answer the following: 1) What is the cost of the building on Bolster Equipment’s statement of financial position at August 31, 2017, its fiscal year end? (Assume that the building interior improvements are expected to last for the remainder of the useful life of the building. The company does not show the governemnt grant as a separate account.) Cost of building : $ __________ 2) What is the effect of this capital asset on the company’s income statement for the company’s year ended August 31, 2018? (Assume that the building interior improvements are expected to last for the remainder of the useful life of the building.) Net effect on Income Statement : $ ____________

Answer 1

1.Cost of building as on August 31st 2017-$1,10,200

Description	Amount In$
Assessed value(195000-155000)	40,000
Architectural drawings	18,000
Contractor cost	17,700
Construction cost(Improvements)	108,000
Total cost of building	183,700
Govt assitance	(73,500)
Net asset value	110,200

Note : In cost reduction method of accounting govt assistance will be reduced from the cost of asset.

2. Net effect on income statement-$2,220

Depreciation for the year is 2,220 (Asset value of 44,400 depreicated @20years).

Assumption There is no Present value calucalation for residual value.

Value of building in Aug'17	110,200
Residual value	(65,800)
Net value	44,400