Question One.
The costs incurred by Noriega Company to acquire land and constructa building
were as follows:
i. | Land | k150,000,000 |
ii. | Construction insurance | k3,500,000 |
iii. | Delinquent tax paid on the land | k 5,000,000 |
iv. | Building construction contract | k 220,000,000 |
v. | Architect Fees | k2,000,000 |
vi. | Street and side Walk installation | k4,000,000 |
vii. | Excavation Costs | k3,100,000 |
viii. | Property Tax on land (pro to construction) | k1,600,000 |
ix. | Interest cost on loan to pay contract | k2,600,000 |
Requirements:
a. Determine the cost of land
b. Determine the cost of the building ( 3 Marks)
c. Assuming the residue value of the building is K60,000,000 andthat the
economic life is Ten years, compute Noriega LTD Company’sdepreciation
expense for Year 1, Year 2, Year 3 under the followingmethods
i. Straight line Method
ii. Double Declining Method
iii. The Sum of Years Digit (SYD) Method ( 2 Marks)
d. At the beginning of Year 4, Noriega LTD Company incurred anadditional
Cost of K10, 000,000 in order to add a new wing to the building; asa result
the salvage value of the building is increased by k5, 000,000 andalso
increased the remaining life of the building by 2 years.
i. Re- Calculate the depreciation for the next two years usingthe straight
line method. ( 3 Marks)
