Purchase Solution

Cost of land vs. building

Not what you're looking for?

Ask Custom Question

(Cost of Land vs. Building) Field Company purchased a warehouse in a downtown district where land values are rapidly increasing. Adolph Phillips, controller, and Wilma Smith, financial vice-president, are trying to allocate the cost of the purchase between the land and the building. Noting that depreciation can be taken only on the building, Phillips favors placing a very high proportion of the cost on the warehouse itself, thus reducing taxable income and income taxes. Smith, his supervisor, argues that the allocation should recognize the increasing value of the land, regardless of the depreciation potential of the warehouse. Besides, she says, net income is negatively impacted by additional depreciation and will cause the company's stock price to go down.

1. What stakeholder interests are in conflict?

2. What ethical issues does Phillips face?

3. How should these costs be allocated?

Purchase this Solution
Solution Summary

This assignment discusses the cost of land vs. building for the Field Company. It examines how the costs should be allocated, the stakeholder interests in conflict, and ethical issues. The solution is about 340 words.

Solution Preview

How should these costs be allocated?

The company purchased both the land and building together, which is considered a parcel. Since it was purchased in this manner the sale value of the land near to the company's land can be used as the basis and will be subtracted from the total parcel value to help determine the value of the building. Since the land prices are increasing rapidly you can use the contribution to value method to determine how the costs ...

Purchase this Solution
Free BrainMass Quizzes
Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Motivation

This tests some key elements of major motivation theories.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

View More Free Quizzes
Related BrainMass Solutions

  • Microeconomics is considered to be the study of scarce resou

    In building the hospital, the city has forgone the opportunity to build a sporting center on that land, or a parking lot, or the ability to sell the land to reduce the city's debt, and so on.

  • Capitalized Cost of Land/Factory Building

    The cost of land is all costs incurred to make the land suitable for use (a) The capitalized cost of land will be Cost of land 3,000,000 Cost of demolished building 260,000 Proceeds from sale of salvage material (24,000) Title insurance and attorney

  • Which amounts to be included in land, land improvements

    Cost of demolishing building to make land suitable for construction of new building 16,140 $947,950 Credits 10.Proceeds from salvage of demolished building $4,920 Please see the attached file Item Land Building Other Account 1 6,400 This is

  • Realized vs recognized gain on sale, adjusted basis

    Phillip exchanges a building valued at $500,000 for land also valued at $500,000 in a qualifying like-kind exchange. That building has a basis of $230,000. What are Peter's recognized gain or loss and his basis in the land? Please use Excel.

  • Basket Purchase

    250813 Recording Land, Warehouse, and Building R. Corporation purchased for $855,000 a tract of land on which was located a warehouse and office building.

  • Cost of Land, Improvements and New Building

    70671 Cost of Land, Improvements and New Building PURCHASE OF LAND 800,000 LAND SURVEY 4,000 LAND TITLE FEE SEARCH 2,000 PERMITS FOR BUILDING 2,500 TEMPORARY HOUSING FOR CONSTRUCTION WORKERS 12,000 DEMOLITION OF EXISTING

  • Identification of expenses.

    (8) Cost of repairing vandalism damage to equipment during installation. (9) Sales tax on new equipment. (10) Cost incurred in repairing damage resulting from installation of new equipment. (11) Cost of land fill for building site.

  • GAAP Vs. IFRS Treatment of Leases

    Lease of Land and Building - The US GAAP considers lease for land and building as capital lease by the lessee if it contains a bargain purchase option while the IFRS considers the land and building as separate elements unless the amount for land is considered

  • Fixed Assets and Journal Entries

    The Land and Building account as of the end of the current fiscal year appears below: 1/31 Land and old building on land $200,000 2/28 Cost of removal of old building $5,000 4/1 Legal fees $6,000 5/1 Fire insurance premium payments

View More Related Solutions