Mindy Esquivel owns a bakery that serves both commercial and retail customers. The bakery is located in the southernmost area of a large metropolitan city. The business has enjoyed great success and customers frequently ask Mindy if she will be opening a bakery more toward the center of the city. Evidently, they are not enjoying the long drive to her current location. After hearing this for several years, she began a search for a site to build the new bakery. Prior to starting the project, Mindy contacted you as her CPA to determine a cost capitalization policy.

Mindy asks that the policy include at what point, and which costs may be capitalized as part of the new-build construction project. She has provided a list of costs she knows will be incurred so be sure to address each of them.

• Architect fees
• Labor and materials used in construction
• Mindy’s own salaried project manager, Ray, who will oversee construction (hired for this project only)
• Preliminary site selection costs including labor hours incurred by Ray
• External legal fees related to property acquisition, construction contract review, etc.
• Costs to paint the new bakery
• Any other costs she might incur during this new-build construction project

Do not do a memo for this – just prepare the capitalization policy for her.

Be sure to cite appropriate substantial authority. In addition, you might find PwC’s guidebook “Property, Plant, & Equipment” helpful.

Answer rating: 100% (QA)

Answer The Capitalization policy framed for the entity is specified below iConcerning ASC 360 the PPE definition must be satisfied before considering any project as a capital project The capitalized m... View the full answer