[Maysam]

Hello,


I'm dealing with a case where a manufacturing company has constructed an additional building in it's own land to increase its production, using its own maintenance crew, regarding the capitalization of this new asset I am uncertain about following expenditures, My question is how should I treat these transactions:


1. The local real estate taxes on the portion of the land which is occupied by the new asset (new building)


2.There are some overhead costs related to the maintenance department, including supervision,depreciation on building and equipment of maintenance department and utilities, also some costs allocated for items such as cafeteria, medical office and personnel department


3. cash discounts earned on materials purchased


4. damages or losses, injuries which are not covered by the insurance


I would appreciate your response
Thank you so much

[smoothy]

Homework rules if you had taken time to read them... mandate you show your answers and work. We do not do your assignments for you.

[Maysam]

Based on my understanding from the concept of capitalization these are my answers:
1.since that portion of the tax mentioned is a percentage of the total property taxes and the company is already paying that amount on the land, this portion should be assigned to the expenses in the income statement

2. The portion of the overhead costs that is related to the construction of the project if identifiable should be capitalized

3. Cash discount should be deducted from the total material purchased cost an then the remaining amount would be the true materials cost which should be capitalized as part of the self-constructed asset in the income statement

4. Since those costs were necessary for making the asset ready to its intended use and if the project was not implemented those costs would not incurred, they should be capitalize assigned to the self constructed asset as well