Question

On December 31, 2018 Change Co. showed the following account balances in his general ledger: Land $330,000 Building and plant facilities 990,000 Machinery and equipment 975,000 During 2019, the following transactions occurred. 1. Land site A was acquired for $650,000 plus legal fees on closing of $40,000. 2. Land site B, with a building, was acquired for $720,000. The closing statement indicated that the land value was $500,000 and the building value was $300,000 Shortly after acquisition, the building was removed and sold to a third party for $50,000. A new building was constructed for $460,000, plus the following costs: Architectural design fees $45,000 Excavation fees 58.000 Imputed interest on company funds 25,000 The imputed interest represents the amount of interest that the company would have paid if it had borrowed money to construct the building. The building was completed and occupied at the end of November 2019. 3. A group of machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machine was $147,000, freight costs were $4,000, and royalty payments for 2019 were $12,000.

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Answer 1

1)  Statement to calculate Land valuation

Particulars	Amount
Opening Balance	$330,000
Add Site A ( including legal fee)	$190,000
Add Site B	$500,000
Land total	$1,020,000

In case of site land and building was revalued at $500,000 and $300,000 but purchased at a cost of $720,000. There is again on revaluation of $80,000.

When the building was raised and sold for $50,000 there is loss on scraping of old building amounted to $250,000

2. Statement to calculate Building valuation

Particulars	Amount
Opening Balance	$990,000
Add New building ( $460,000 +$45,000 + $ 58,000)	$563,000
Total Building	$1,553,000

Note that imputed interest is not capitalized as it just is an estimate of the borrowing charges

Statement to calculate equipment valuation

Particulars	Amount
Opening Balance	$975,000
New equipment ($147,000 + 4,000)	$151,000
	$1,126,000

Note that royalty payment is operational expense and wont be capitalized.

b) In case of site B land and building was revalued at $500,000 and $300,000 but purchased at a cost of $720,000. There is again on revaluation of $80,000.

When the building was raised and sold for $50,000 there is loss on scraping of old building amounted to $250,000 Both of these needs to be shown as part of other comprehensive income under realized gain or loss.

Royalty payment is a periodical expense and needs to be treated as an expense in income statement