Compute the amount of borrowing cost to be capitalized

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Reference no: EM132774643

Question 1 - In 2015, RE Company constructed a new building incurred the following:

Excavation fees P120,000

Architecture design fees 90,000

Building permit fees 60,000

Imputed interest (on funds used in construction-stock financing) 70,000

Cost of removal of old building 50,000

Labor costs 160,000

Overhead costs 50,000

Materials used 500,000

Profit on self-construction 100,000

Safety inspection costs prior to use 25,000

Required - The amount initially recorded as the cost of the building is?

Question 2 - The following expenditures were incurred by Gold Company during 2012

Cost of real estate purchased as a plant site (land P487,5000 and building P2,5000) 500,000

Delinquent property taxes assumed by Gold Company 40,000

Commission fees paid to real estate agency 16,000

Cost of demolishing old building 30,000

Proceeds from salvage of demolished building 5,000

Cost of land fill and clearing 316,000

Land survey 40,000

Building permit 20,000

Excavation costs 30,000

Temporary quarters for construction crews 16,000

Installation of fences around the property 40,000

Cost of paving the driveways and parking bays 20,000

Interest paid on money borrowed for construction 20,000

Payment for construction of building 1,200,000

lnsurance premium on building during construction 120,000

Opening ceremony costs of new building 50,000

Required - Identify the costs to be charged as:

a. Land =?

b. Land Improvements =?

c. Building = ?

d. Charged in Pro?t or Loss =?

Question 3 - Grumpy Company borrowed P2,000,000 specifically to finance the cost of constructing a regional office. The loan was dated March 1, 2016. Interest on the loan is at 12%. Construction on the building started only on September 1, 2016 and was completed on December 31, 2016.

During the period of construction, Grumpy Company incurs directly attribute costs of P650,000 in September 2016 and P450,000 in each month from October to December 2016 (these costs are incurred on the first day of each month).

Each month the borrowings, less any amount used for the building in that month are re-invested and earn interest at a rate of 6% per annum.

Required - Compute the amount of borrowing cost to be capitalized.

Reference no: EM132774643

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