Joe Mason acquired land on which he will construct a new restaurant. A chemi-cal plant had once occupied the site. Government regulations require Mason to clean up the chemical residue before building. The cost of the cleanup is material.
a. Under current GAAP, an asset is charged with historical cost, which includes the purchase price and all costs incident to getting the asset ready for its intended use. Defend the historical cost principle. Use the conceptual frame-work concepts and definitions in your defense.
b. How should Joe treat the cost of the cleanup? Is it a land cost, a building cost, or an expense? Explain.