Pine Company acquires land for P86,000 cash. Additional costs are as follows: Removal of shed P 300 Filling and grading 1,500 Salvage value of lumber of shed 120 Broker commission 1,130 Paving of parking lot 10,000 Closing costs 560 Pine will record the acquisition cost of the land as
Question
Pine Company acquires land for P86,000 cash. Additional costs are as follows: Removal of shed P 300 Filling and grading 1,500 Salvage value of lumber of shed 120 Broker commission 1,130 Paving of parking lot 10,000 Closing costs 560 Pine will record the acquisition cost of the land as
Solution
The acquisition cost of the land is calculated by adding the purchase price of the land and all additional costs directly associated with making the land ready for use.
Here's how you calculate it:
- Start with the purchase price of the land: P86,000
- Add the cost of removal of the shed: P300
- Add the cost of filling and grading: P1,500
- Subtract the salvage value of the lumber of the shed: -P120 (This is subtracted because it's a recovery of some of the costs)
- Add the broker commission: P1,130
- Add the closing costs: P560
The cost of paving the parking lot is not included in the acquisition cost of the land because it is considered a land improvement, not a cost to get the land ready for use.
So, the calculation is:
P86,000 (purchase price)
- P300 (shed removal)
- P1,500 (filling and grading)
- P120 (salvage value of shed)
- P1,130 (broker commission)
- P560 (closing costs) = P89,370
Therefore, Pine Company will record the acquisition cost of the land as P89,370.
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