Question

Which of the expenditures below should be classified as land?

a) Parking lots Electricity used by a machine
b) Excavation cost Interest on building construction loan Cost of trial runs for machinery
c) Drainage costs Costs to install a machine
d) Fences Unpaid (past) property taxes assumed
e) Cost of tearing down a building when land and a building on it are purchased

Answer 1

e) Cost of tearing down a building when land and a building on it are purchased

Step-by-step explanation:

In terms of IAS 16, Cost of a Property, Plant and Equipment item include, Purchase cost and any other cost directly incurred to place the asset in the location and condition intended for use by management.

Cost of tearing down a building when land and a building on it are purchased are costs directly incurred to place the Land and Building in the location and condition intended for use by management and will be included in the cost of Both the Land and Building in their apportioned values based on fair values.