Question

Question 2:

On September 25, 2020, ATS Corporation purchased land as a factory site for 600,000 TL. An old building on the property was demolished and removed and the construction of a new building which was completed on November 24, 2020. Costs incurred during this period are listed below:

Demolition of old building	60,000TL
Architect’s fees	15,000TL
Legal fees for title investigation and purchase contract	8,000TL
Construction costs	1,000,000TL

(Salvaged materials resulting from demolition were sold for 120,000TL.)

Required:

1. How much should ATS Corporation record the cost of the land and new building respectively?
2. Record the journal entries assuming all payments and receipts are in cash.

Answer 1

a) Cost to be recorded by ATS Corporation is as follows:

Cost of land to be recorded is 600,000 TL

Whereas, cost of building to be recorded is as follows:

Demolition cost of old building= 60,000TL

+ Architect's fees = 15,000 TL

+ Legal fees = 8,000 TL

+ Construction costs= 1,000,000 TL

(-) Salvaged materials sold = 120,000 TL

Total cost of new building is = 963,000 TL

b) Journal entries to be recorded are:

1. On purchase of land;

Dr. Land 600,000 TL

Cr. Cash 600,000 TL

2. Construction of new building

Dr. New Building 963,000 TL

Cr. Cash 963,000 TL

Note: Whenever any fixed asset like building, machinery etc are purchased or constructed then all the expenses incurred are altogether debited in the name of that specific asset. Like here, all the expenses say legal fees, architects fees would debited to buildings account.

Note: Cost incurred on demolition of old building and sale of salvage would be suggested under new buildings construction account.