Regal recently purchased a building and the tract of land on which it is located.Regal plans to raze the building immediately and to erect a new building on the site.The value of the original building should be

Question

Quizplus · Accepted Answer

When a company purchases a building and the tract of land on which it is located with the intent to raze it immediately and erect a new building on the site, the value of the original building should be capitalized as part of the cost of the land. This is because the purchase price of the building and the land together represent the cost of acquiring the new building site. Razing the old building and constructing a new building on the land is considered a part of the cost of the new building, which will be capitalized separately. Therefore, the original building should not be written off as an extraordinary loss, depreciated, or capitalized as part of the new building cost.

Regal Recently Purchased a Building and the Tract of Land