Question

Ivanhoe Corp. purchased land with two old buildings on it as a factory site for $454,000. The property tax assessment (that is, assessed value) on this property was $356,000: $249,000 for the land and the rest for the buildings. It took six months to tear down the old buildings and construct the factory. The company paid $60,100 to raze the old buildings and sold salvaged copper, lumber, and brick for $6,700. Legal fees of $1,860 were paid for title search and drawing up the purchase contract. Payment to an engineering firm was made for a land survey, $2,600, and for drawing the factory plans, $89,500. The land survey had to be made before final plans could be drawn. The liability insurance premium that was paid during construction was $890. The contractor’s charge for construction was $3,640,000. The company paid the contractor in two instalments: $1,140,000 at the end of three months and $2,500,000 upon completion. The architects and engineers estimated the cost of the building to be 55% attributable to the structure, 35% attributable to the HVAC services (heating, ventilation, air conditioning), and the remainder attributable to the roof structure, as each of these elements is expected to have a different useful life. Interest costs of $178,000 were incurred to finance the construction. Determine the land and building costs as they should be recorded on the books of Ivanhoe Corp. Assume that the land survey was for the building.

Cost of land?

Cost of building?

Answer 1

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		Land	Building
Land		$             454,000
Razing Costs		$                60,100
Salvage		$                -6,700
Legal Fees		$                  1,860
Survey			$           2,600
Plans			$         89,500
Liability Insurance			$               890
Construction			$   3,640,000
Interest			$       178,000
		$             509,260	$   3,910,990
		Building
Building – Structure	55%	$          2,151,045
Building – HVAC	35%	$          1,368,847
Building – Roof	10%	$             391,099
	100%	$          3,910,990