Question

You purchase a building for $2,500,000, pay legal fees of $100,000, and pay back taxes of $50,000. You immediately occupy the building and pay $500,000 for renovations. The amount you can capitalize as part of the building is: Group of answer choices $2,600,000 $3,150,000 $2,500,000 $2,650,000

Answer 1

$3,150,000

Step-by-step explanation:

The cost of an asset includes all the cost incurred in bringing the asset to the point or location where it becomes available for use. At this point, the asset is ready to be depreciated.

Note however that the cost excludes taxes that are recoverable however, the tax given is a tax due but yet to be paid and will form part of the cost of the asset. Hence

cost of asset

= $2,500,000 + $100,000 + $500,000 + $50,000

= $3,150,000