Wonderer Inc. incurred the following expenditures in 2020:

Purchase of land with a dilapidated building at the beginning of the

year (no significant value)

P5,600,000

Land survey 208,000

Fees for search of title for land 24,000

Special assessment of the government for road projects 80,000

Property taxes from 2018 to 2020 120,000

Cost to raze the old building, see audit note a. 940,000

Payments to tenants of the old building 184,000

Building construction permit fee 140,000

Cost of excavation of the land, including an excavation equipment

with a cost of P100,000, see audit note b

400,000

Temporary quarters for construction workers 430,000

Permanent fencing of property after construction 320,000

Dividends that should have been earned had the money used for

construction been invested in the equity instruments

200,000

Cost of construction 6,600,000

Cost of paving parking lot, driveway and sidewalks 900,000

Profit on construction, as the difference between the appraised

value of the asset after construction and actual costs incurred 1,900,000

Damages awarded for injuries sustained in construction where no

Insurance is carried 336,000

List price of Machinery and equipment purchased 4,567,000

Trade discount not taken on the machinery and equipment purchased 127,000

Cost of freight and handling 50,000

Cost of testing the equipment, see note c. 85,000

Additional Audit notes:

a. Salvage proceeds from materials recovered from demolition of dilapidated building,

P5,000.

b. Proceeds from sale of the excavation equipment, P20,000.

c. Proceeds from sale of produce from the testing done on the machinery and equipment

amounted to P25,000.

d. A portion of the building site had been temporarily used by Wonderer Inc. to operate a car

park while the building was being constructed. A total of P650,000 was earned by Bacolod

from his incidental activity.

Requirements:

1. What is the correct cost of the land?

2. What is the correct cost of land improvements, if there are any?

3. What is the cost of the building?

4. What is the cost of machinery and equipment?

Answer rating: 100% (QA)

To determine the correct costs in the given scenario we need to analyze the different expenditures and consider the relevant audit notes Lets calculat... View the full answer