Question 4 Doctors Deacon, Peterson and Anderson operate a health clinic. Their practice is expanding and they decide to move the clinic's operations to larger premises. The building they acquire is 15 years old and in need of modernization. It cost $200,000 to build and the seller carries it in its books at depreciated cost of $80,000. The doctors pay $250,000 for it. Legal costs associated with the purchase are $6,000. The doctors obtain a ten-year 7% loan of $150,000 from their bank to finance the purchase. The building requires extensive alterations. Before moving in, the doctors spend $50,000 on these alterations. They create new office space by altering internal walls and fitting partitions. They lower the ceilings of many of the rooms in order to house cable for medical and computer equipment. The alteration work takes two months. At the same time, they replace the air-conditioning system at a cost of $20,000. The office manager, who spends half her time supervising the alteration work receives an annual salary of $42,000. Within a month of moving in, the doctors receive an annual property tax assessment of $3,000 and vandals smash some windows on the ground floor of the building. The cost of replacing the glass, $2,500 is covered by insurance but the doctors decide to fit external roller blinds to all the windows at a cost of $12,000 in order to reduce the risk of further damage and to improve the security of the building Required: (i) The doctors' record fixed assets at historical cost. In your opinion, which of the above costs should be capitalized. (ii) How can a company pay dividends when it has reported a loss? (4 marks)