Which of the following costs should be capitalized as part of the cost of a new building constructed by the company?

Answer options:

Costs of removing an old building on the site (net of salvage)

Architect's fees and building permits

Interest incurred on debt during construction

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

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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