Ivanhoe Corp. purchased land with two old buildings on it as a factory site for
ID: 2558220 • Letter: I
Question
Ivanhoe Corp. purchased land with two old buildings on it as a factory site for $454,000. The property tax assessment (that is, assessed value) on this property was $356,000: $249,000 for the land and the rest for the buildings. It took six months to tear down the old buildings and construct the factory.
The company paid $60,100 to raze the old buildings and sold salvaged copper, lumber, and brick for $6,700. Legal fees of $1,860 were paid for title search and drawing up the purchase contract. Payment to an engineering firm was made for a land survey, $2,600, and for drawing the factory plans, $89,500. The land survey had to be made before final plans could be drawn. The liability insurance premium that was paid during construction was $890. The contractor’s charge for construction was $3,640,000. The company paid the contractor in two instalments: $1,140,000 at the end of three months and $2,500,000 upon completion. The architects and engineers estimated the cost of the building to be 55% attributable to the structure, 35% attributable to the HVAC services (heating, ventilation, air conditioning), and the remainder attributable to the roof structure, as each of these elements is expected to have a different useful life. Interest costs of $178,000 were incurred to finance the construction.
Determine the land and building costs as they should be recorded on the books of Ivanhoe Corp. Assume that the land survey was for the building.
Explanation / Answer
The assessed value of the total property is 356000.In this 249000 as land and 107000 as buldings. it means 70% of cost incurred for land and 30% incurred for buildings. so all the joint expenses will divided on this proportianate i.e 70% &30%
Cost Of Land:
purchase cost of Land (70% of 454000) = $317800
Legal fees for tite search and drawing up of purchase contract(70%of 1860) = $1302
Total Land Cost should be recorded on the book is $319102
cost of building:
purchase cost of building(30%454000) =$136200
Legal fees for tite search and drawing up of purchase contract(30%of 1860) =$558
payment to engineer for land survey =$2600
razing expenses of bulding =$60100
$199458
( -) amount received on sold salvage of iron, llumber etc $6700
Cost of building should be recorded in books is $192758
explanation:
here company bought the building for factory purpose but building is not usefull for factory so razing of building expenses included in the building cost itself .
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