Cotton Hotel Corporation recently purchased Holiday Hotel and the land on which it is located with a plan to tear down the Holiday Hotel and build a new luxury hotel on the site. The cost of the Holiday Hotel should be

Question

Quizplus · Accepted Answer

The cost of the Holiday Hotel should be capitalized as part of the cost of the land because the existing structure (Holiday Hotel) will be torn down, and the land will be used for a new purpose (building a new luxury hotel). The demolition of the old hotel and the preparation of the land for new construction are considered part of the land cost, not a separate depreciable asset or an extraordinary loss.

Cotton Hotel Corporation Recently Purchased Holiday Hotel and the Land