[kukuna2008]

HI Ninjas, there is a Ninja MCQ confused me and I would like to seek some help here. Jeff, let me know if i am not suppose to post the original question.

The question is:

John began a project to construct new corporate headquarters. John purchased land with an existing building for $750,000. The land was valued at $700,000 and the building at $50,000.John planned to demolish the building and construct a new office building on the site. What is the appropriate accounting treatment for interest of $186,000 on construction financing paid during construction?

the answer is Classify as building and depreciate.

My question is why not Classify as land and do not depreciate? or allocate between these two?

thank you!

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

[mw798]

I think the key here is “$186,000 on construction financing paid during construction.”

You are paying to demolish a building and to construct a new one.

[mla1169]

Any costs incurred to get the building placed in service are depreciable, so any interest paid until the building is done can be depreciated. If he paying the interest over several years after the building was done, it would be expensed.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[kukuna2008]

Thank you for the answers!

FAR - 83, 04/2015
AUD - 73, 86, 08/2015
REG - 75
BEC - 71, rematch in 04/2016

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