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
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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