If a corporation purchases land and building and subsequently tears down the building and uses the property as a parking lot, the proper accounting treatment of the cost of the building would depend on
A) the significance of the cost allocated to the building in relation to the combined cost of the land and building.
B) the length of time for which the building was held prior to its demolition.
C) the contemplated future use of the parking lot.
D) the intention of management for the property when the building was acquired.

Question

Quizplus · Accepted Answer

The proper accounting treatment of the cost of the building in this scenario depends on the intention of management for the property when the building was acquired. If the intention was to demolish the building and use the land for a different purpose (e.g., a parking lot), the cost of the building could be considered part of the land cost and not depreciated as a separate asset.

If a Corporation Purchases Land and Building and Subsequently Tears