Question

Indicate whether each of the following expenditures should be classified as Building, Land improvements or None of these *

Construction Material

Closing Cost

Fences

Purchase Price

Annual Property Taxes

Driveway

Answer 1

SOLUTION :

Construction Material - Building

It is a directly attributable cost to the building. It will be capitalized and depreciated.

Closing Stock - None of these

Closing stock relates to the goods that are to be sold in the normal course of business. They are current assets.

Fences - Land Improvement

Fences improves the usability of land. They can be added to the cost of land if fencing actually prepares the land for its intended use. But then, it can't be depreciated because land has a perpetual life. On the other hand, if the improvement has a useful life, SUCH IMPROVEMENT ALONE can be depreciated.

Purchase Price - Building

It is the amount paid to the vendor to secure the structure of the building. It is capitalized and depreciated.

Annual Property Taxes - None of these

Only the initial non recoverable taxes are are added to the cost of the property. Subsequent taxes like annual property taxes are of revenue nature and will be charged to income statement.

Driveway - Land Improvement

(Refer the explanation of fences)

NOTE : All are analyzed as per ASC 360 on Property, Plant & Equipment under the US GAAP.