Question

"Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $460,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker's commission, $26,000; title insurance, $1,600; and miscellaneous closing costs, $5,400. The warehouse is immediately demolished at a cost of $26,000 in anticipation of building a new warehouse. Determine the amount FVI should record as the cost of the land."

Answer 1

Cost of land = $519,000

Step-by-step explanation:

According to International Accounting Standards (IAS) 16, property plants and equipments, the cost of land includes all of the cost necessary to bring and make it ready for the intended use.

These costs include purchase cost, fees and commission associated with the purchase transaction.

Further more, included in the historical cost are the net demolition cost of old structure to prepare the land for use. Net cost here means cost of demolition less any incidental proceed from the old structure.

Note that all the costs incurred by FVI as reported all fall into the above definition of cost of land.

Therefore the cost of the land would be

=460,000 + 26,000 + 1,600+ 5,400 + 26,000

= $519,000