Maryborough Ltd has acquired a new building for $5,00,000. It has incurred incidental cost of $10,000 in the acquisition process for legal fees, real estate agents fees and stamp duties. Management believes that these costs should be expended because they have not increased the value of the building and if the building was immediately resold, these amounts would not be recouped. In other words the fair value of the buildings is considered to still be $500000.
Explain how Maryborough Ltd should account for the $510000 it has expended with respect to the building.
Ana from Fiji
Ana! Accounting principles have not made by management and there will not any effect on accounting rules of management believes. Management's duty is to take decisions but not make accounting rules. Ok, As per accounting rules, total cost of acquisition of building will include all cost of buying and get it to the point of use. So, we will should record total purchase price, real estate fees and legal charges. All these expenses will be debit in building account and bank account will be credit.