Reference no: EM133106726
Question - Accardo Company, an SME, constructed a building at total cost of P10,500,000 that was completed on January 1, 2018.
The useful life of the building is 10 years. Included in the cost was borrowing cost for 2018 amounting to P200,000.
Accardo borrowed P4,000,000 to finance the construction of the building on January 1, 2016 and is due on January 1,2021. The annual interest is payable every December 31. The building is to be leased out under an operating lease to unrelated parties starting 2018 and the entity received rentals of P1,200,000 for 2018. The entity also determined thatit can measure the fair value of the building on an ongoing basis without undue cost and effort. On December 31, 2018, the fair value of the building is P12,000,000. The entity paid P250,000 and P320,000 of property taxes andmaintenance cost respectively for 2018.
Required -
1. What is the initial cost of the building on January 1, 2018?
a. 10,500,000
b. 10,300,000
c. 10,550,000
d. 10,750,000
2. What net amount of income should be reported by SME for 2018?
a. 880,000
b. 630,000
c. 1,100,000
d. 2,130,000
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