Question

In 2017, a company purchased a new head office (land and buildings) and paid property taxes of $24,000. These costs should be ____________________________ .

a. recognised as a capital cost.
b. recorded as an impairment loss.
c. ignored, as these costs are irrelevant.
d. expensed in the 2017 statement of income.

Answer 1

Property taxes paid upon purchasing new head office should be capitalised as they are part of the acquisition cost of the fixed asset and not expensed in the income statement.

Step-by-step explanation:

In 2017, when a company purchased a new head office, the property taxes of $24,000 paid as part of the acquisition cost should be recognised as a capital cost. This is because property taxes directly associated with the purchase of a fixed asset like land and buildings should be capitalized. Capitalizing these costs means that they will be included in the value of the property on the balance sheet and will be depreciated over the useful life of the asset instead of being expensed in the year they were paid. Hence, the correct answer to the question is: a. recognised as a capital cost.