Question

A company purchased land for $94,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the historical cost principle, the cost of land would be recorded at __________

Answer 1

Answer:

$104,800

Explanation:

The cost of land would be all the cost incurred to leave the asset ready for use:

  $94,000 purchase cost

+ $5,000 fees

+ $7,000 demolition

- $1,200 recovery cost for demolition

Total cost for land ready to use:

$104,800

Remember:

The cost include the original purchase prica and the cost of preparation, delivery, handling, installation and professional fees. Because all this cost are required to leave the asset ready for use.