Question

A company purchased land for $90,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the historical cost principle, the cost of land would be recorded at A. $102,000. B. $107,000. C. $90,000. D. $70,000.

Answer 1

The answer is A. $102.000

Step-by-step explanation:

When property, plant, and equipment is bought the historical cost must include not only the price of purchase but all the necessary expenses (commission, warranties, installation among others) to prepare the asset and leave it in place and ready to be used.

This is why is this example we need to add the commission and the expenditures of demolishing to the price of purchasing