Question
On January 1, Year 1, Holt Company hired a general contractor to begin construction of a new office building. Holt negotiated a $900,000, five-year,10 percent
On January 1, Year 1, Holt Company hired a general contractor to begin construction of a new office building. Holt negotiated a $900,000, five-year,10 percent loan on January 1, Year 1, to finance construction. Payments made to the general contractor for the building during Year 1 amount to $1,000,000. Payments were made evenly throughout the year. Construction is completed at the end of Year 1 and Holt moves in and begins using the building on January 1,Year 2. The building is estimated to have a 40-year life and no residual value.On December 31, Year 3, Holt Company determines that the market value for the building is $970,000. On December 31, Year 5, the company estimates the market value for the building to be $950,000. Assume Holt invested excess loan proceeds until needed and earned $25,000 of interest revenue in year 1.
1. Determine the capitalized cost of the building under IFRS and US GAAP.
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