Blossom Supply Ltd. is a newly formed public corporation that incurred the follo

Question

Blossom Supply Ltd. is a newly formed public corporation that incurred the following costs related to land, buildings, and machinery:

(a)

Determine the amounts that should be included in the cost of land, buildings, and machinery. Also determine the other amounts that are not included in these accounts.

Legal fees for title search $500 Property tax in arrears at property purchase date 4,000 Architect’s fees 2,700 Cash paid for land and dilapidated building on it 110,000 Removal of old building $20,000     Less: Salvage 5,400 14,600 Surveying before construction 350 Interest on short-term loans during construction 7,300 Excavation before construction for basement and foundation 19,000 Machinery purchased (subject to 2% cash discount, which was not taken) 65,000 Freight on machinery purchased 1,300 Exchange on foreign currency purchase of machinery 1,000 Storage charges on machinery, made necessary because building was still under
construction when machinery was delivered 2,100 New building constructed (building construction took six months from date of
purchase of land and old building) 480,000 Assessment by city for drainage project 1,500 Fence surrounding the property for security 13,000 Hauling charges for delivery of machinery from storage to new building 600 Installation of machinery 1,900 Customs duty on importing machinery 5,300 Municipal grant to promote locating building in the municipality (7,900 )

Explanation / Answer

Determination of the amounts that should be included in the cost of land, buildings, and machinery Type of expenditure Land Building Machinery Other Legal fees for title search $500.00 Property tax in arrears at property purchase date $4,000.00 Architect’s fees $2,700.00 Cash paid for land and dilapidated building on it $110,000.00 Removal of old building $14,600.00 Surveying before construction $350.00 Interest on short-term loans during construction $7,300.00 Excavation before construction for basement and foundation $19,000.00 Machinery purchased $65,000.00 Freight on machinery purchased $1,300.00 Exchange on foreign currency purchase of machinery $1,000.00 Storage charges on machinery, made necessary because building was still under construction when machinery was delivered $2,100.00 New building constructed $480,000.00 Assessment by city for drainage project $1,500.00 Fence surrounding the property for security $13,000.00 Hauling charges for delivery of machinery from storage to new building $600.00 Installation of machinery $1,900.00 Customs duty on importing machinery $5,300.00 Municipal grant to promote locating building in the municipality -$7,900.00 Total Cost $114,500.00 $536,950.00 $73,500.00 -$2,700.00

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