The following information pertains to equipment constructed by a firm for its own use. The construction is finished. $$\begin{array} { | l | l | }
\hline \text { Materials used in construction } & \$ 40,000 \
\hline \text { Labour cost during construction } & 20,000 \
\hline \text { F ringe benefits on above labour } & 5,000 \
\hline \text { Incremental overhead due to Construction } & 8,000 \
\hline \text { Interest expense on debt during Construction (assume this meets the requirements for interest capitalization) } & 4,000 \
\hline
\end{array}$$ The market value of the equipment immediately after construction was completed was $65,000. What is the loss on construction incurred by the firm?

Question

The following information pertains to equipment constructed by a firm for its own use. The construction is finished. $$\begin{array} { | l | l | } 
\hline \text { Materials used in construction } & \$ 40,000 \
\hline \text { Labour cost during construction } & 20,000 \
\hline \text { F ringe benefits on above labour } & 5,000 \
\hline \text { Incremental overhead due to Construction } & 8,000 \
\hline \text { Interest expense on debt during Construction (assume this meets the requirements for interest capitalization) } & 4,000 \
\hline
\end{array}$$ The market value of the equipment immediately after construction was completed was $65,000. What is the loss on construction incurred by the firm?

Quizplus · Accepted Answer

The total cost of construction is $77,000 ($40,000 + $20,000 + $5,000 + $8,000 + $4,000). The market value is $65,000, resulting in a loss of $12,000 ($77,000 - $65,000).

The Following Information Pertains to Equipment Constructed by a Firm