Question
On 1 December 2019, Zeta commenced the construction of a new warehouse facility on a piece of land it owns. Costs incurred were as follows:
On 1 December 2019, Zeta commenced the construction of a new warehouse facility on a piece of land it owns. Costs incurred were as follows:
$000 Architect's fees 560 Construction materials 3,360 Salaries of internal staff involved in construction 504 Allocation of company overheads (head office costs) 62 Cost of opening the new warehouse 42
The construction was completed on 31 May 2020 and the warehouse came into use the following day. The construction materials cost was incurred on 1 December 2019 and the construction activities began on the same date.
Construction was partly financed by a new 2-year $2.8 million loan borrowed specifically from a local bank at an annual rate of 4%, issued on 1 December 2019. Interest is paid in arrears on 30 November with an effective interest rate of 6% per year.
There is a legal requirement to dismantle warehouse in 50 years time from 31 May 2020 and the expected cost of dismantling the warehouse is about $7 million on 31 May 2070. Zeta discounts dismantling costs at 5% per annum. The present value of $1 over 50 years at 5% is 0.0872.
The director of Zeta is not certain how to measure the cost of the warehouse.
Show description of items that make up the cost of warehouse as at 31 May 2020 with detail breakdown of each costs. You need to give explanation for item that cannot capitalize as part of the warehouse.
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