Question

A company purchased land for $96800 cash. Real estate brokers' commission was $3700 and $7500 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1200. Under the historical cost principle, the cost of land would be recorded at

Answer 1

$106,800

Step-by-step explanation:

The cost of land includes purchase plus all other costs 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.

However, remember that land is not depreciated because it has an infinite life span.

So using the historical cost principle the cost of the land

= $96800 + $3700 + $7500 - 1,200

= $106,800