Reference no: EM132940439

Question - On January 1, 2019, GUTZY Corporation  purchased a tract of land (site number 101) with a dilapidated building for P1,800,000. Additionally, GUTZY paid a real state broker's commission of P108,000, legal fees of P18,000 and title guarantee insurance of P54,000. The closing statement indicated that the land value was P1,500,000 and the building salvage value was P300,000. Shortly after acquisition, the building was razed at a cost of P225,000.

GUTZY entered into a P9,000,000 fixed-price contract with GIBA Builders, Inc. on March 1, 2019 for the construction of an office building on the land site 101. The building was completed and occupied on September 30, 2020. Additional construction costs were incurred as follows:

Plans, specifications and blueprints P 36,000

Architect's fees for design and supervision 285,000

The building is estimated to have a forty-year life from date of completion and will be depreciated using the 150%-declining-balance method.

To finance the construction cost, GUTZY borrowed P9,000,000 on March 1, 2019. The loan is payable in ten annual installments of P900,000 plus interest at the rate of 14%. GUTZY used part of the loan proceeds for working capital requirements. GUTZY's average amounts of accumulated building construction expenditures were as follows:

For the period March 1 to December 31, 2019 P2,700,000

For the period January 1 to September 31, 2020   6,900,000

GUTZY is using the allowed alternative treatment for borrowing cost.

Based on the above and the result of your audit, determine the cost of office building?

a. P10,960,500

b. P10,329,000

c.  P10,581,000

d. P10,360,500