The Final Word Company produces word processing software. The company recently p

Question

The Final Word Company produces word processing software. The company recently purchased a large tract of land on which will be constructed several buildings to house the production and administrative personnel of the company. The following improvements are expected to be made to the land as part of the construction of the complex: The roads on all sides of the land will be graded and paved. Street lights will be installed. Sewer and drainage systems will be installed. Several private roads will be constructed on the property. Sidewalks will be constructed to connect the various buildings. Parking lots will be constructed at selected places on the property for employee and customer parking. The property will be suitably landscaped. Required: Explain how each of the above items would be accounted for in the records of Final Word Company.

Explanation / Answer

Golden rule:

‘Project costs clearly associated with the acquisition, development, and construction of a real estate project shall be capitalized as a cost of that project.’’

The implication here is that for a cost to be capitalized as a project cost, there has to be a clear indication that it is directly related to a project.

Note : Assume all expenses are directly related to a project, hence capitalized as a cost of project

Accounting Head creation

Main : Buildings

Sub -group: factory Buildings

After creating Account heads then post the entries

In most of the cases Capitalization shall be done either on completion of project or financial year ending.

1. Building A/c             Dr XXXXXXX

           to Bank or Sub Ledger A/c     Cr XXXXXXX

for construction of building many accounting heads are required.

like wise pass all entries

               

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