ExpertMedium1 markMultiple Choice
CPA · Question 50 · Area II: Technical Accounting
Which of the following costs should be capitalized as part of the cost of a new building constructed by the company?
Which of the following costs should be capitalized as part of the cost of a new building constructed by the company?
Answer options:
A.
Costs of removing an old building on the site (net of salvage)
B.
Architect's fees and building permits
C.
Interest incurred on debt during construction
D.
Both B and C
How to approach this question
Identify costs directly attributable to the asset. Land costs (razing old building) vs Building costs (Permits, Architect, Capitalized Interest).
Full Answer
D.Both B and C✓ Correct
D
Architect's fees, building permits, and interest incurred during the construction period (avoidable interest) are all capitalized as part of the cost of the building. Demolition of an old building is a cost of the Land.
Common mistakes
Allocating demolition to Building; expensing interest during construction.
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