Land and Building

Question 1

When an entity acquired land with an old building and immediately demolished the old building so chat the land can be used for the construction of a plant, the cost incurred to demolish the old building should be

a. Expensed as incurred
b. Added to the cost of the plant
C. Added to the cost of the land
d. Amortized over the estimated time period between the demolition of the building and the completion of the plant

Answer 1

b. Added to the cost of the plant

Question 2

If an entity purchased a lot and an old building and demolished the old building to make room for the construction of a new building, the proper accounting treatment of the allocated carrying amount of the old building would depend on

a. The significance of the cost allocated to the building in relation to the combined cost of the lot and building
b. The length of time for which the building was held prior to demolition
C. The contemplated future use of the old building
d. The intention of management for the property when the new building was constructed

Answer 2

d. The intention of management for the property when the new building was constructed

Question 3

An entity purchased land to be used as an investment property. Timber was cut from the site so development of the land could begin. The proceeds from the sale of the timber should be

a. Classified as other income
b. Credited to retained earnings
c. Deducted from the cost of the land
d. Classified as deferred income and amortized over five years

Answer 3

c. Deducted from the cost of the land

Question 4

An entity purchased land and a hotel with the plan to tear down the hotel and build a new hotel. The allocated cost of the old hotel should be

a. Depreciated over the remaining life of the old hotel.
b. Written off as loss in the year the hotel is torn down.
c. Capitalized as part of the cost of the land.
d. Capitalized as part of the cost of the new hotel.

Answer 4

b. Written off as loss in the year the hotel is torn down.

Question 5

An entity’s forest land was condemned for use as a national park. Compensation for the condemnation exceeded the forest land’s carrying amount. The entity purchased similar, but larger, replacement forest land for an amount greater than the condemnation award. As a result of the condemnation and replacement, what is the net effect on the carrying amount of forest land reported in the statement of financial position?

a. The amount is increased by the excess of the replacement forest land’s cost over the condemned land’s carrying amount
b. The amount is increased by the excess of the replacement forest land’s cost over the condemnation award
c. The amount is increased by the excess of the condemnation award over the condemned forest land’s carrying amount
d. No effect, because the condemned forest land’s carrying amount is used as the replacement forest land’s carrying
amount

Answer 5

a. The amount is increased by the excess of the replacement forest land’s cost over the condemned land’s carrying amount