On January 1, 2021, EFG Company acquired a building for P1,200,000. Professional fees for legal services and property transfer taxes incurred on the acquisition amounted to P50,000. Start-up costs incurred amounted to P20,000. Operating losses incurred before the planned level of occupancy of the building is achieved amounted to P120,000. Materials labor and overhead incurred for repairs and renovation of the property before it was put to leasable condition amounted to P200,000. Abnormal amounts of wasted material, labor and other resources incurred in developing the property amounted to P60,000. The renovation and repairs were completed on March 31, 2021. The building has an estimated remaining useful life of 10 years with no residual value. EFG Company uses cost model and the straight-line method of depreciation for its investment property. The building has a fair value of P1,400,000 on December 31 ,2021 Required: How much is amount of investment property recognized on January 1, 2021?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2021, EFG Company acquired a building for P1,200,000.
Professional fees for legal services and property transfer taxes incurred on
the acquisition amounted to P50,000. Start-up costs incurred amounted
to P20,000. Operating losses incurred before the planned level of
occupancy of the building is achieved amounted to P120,000. Materials
labor and
before it was put to leasable condition amounted to P200,000. Abnormal
amounts of wasted material, labor and other resources incurred in
developing the property amounted to P60,000. The renovation and repairs
were completed on March 31, 2021. The building has an estimated
remaining useful life of 10 years with no residual value. EFG Company uses
cost model and the straight-line method of depreciation for its investment
property. The building has a fair value of P1,400,000 on December 31 ,2021
Required: How much is amount of investment property recognized on
January 1, 2021?
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