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On April 1, 2018, Rawabi started building a building
On April 1, 2018, Rawabi started building a building. During 2018, the following costs were paid to the building. Date 1/4 1/7 1/8 Amount paid 150,000 240,000 180,000 270,000 120,000 960,000 1/11 31/12 Total Assume that the building become ready for use on 31/12/2018 Required : 1-Calculate the weighted average accumulated expenditures 2-if the company uses the straight line method Assume the estimated useful life for the building 60 years and The salvage value of the building $100,000.the actual interest and avoidable interest for 2018: 40,000 70,000 respectively. Calculate the book value of the building at the end of 2019
Expert Solution
Computation of weightage average expenditure
| Particulars | Amounts $ |
| Expenditure on 1/4/2018 | 150,000 |
| Expenditure on 1/7/2018 (240,000*6/9) | 160,000 |
| Expenditure on 1/8/2018 (180,000*5/9) | 100,000 |
| Expenditure on 1/11/2018 (270,000*2/9) | 60,000 |
| Expenditure on 31/12/2018 ( 120,000*0/9) | 0.00 |
| Weighted average accumulated expenditure | 470,000 |
The interest cost to be capitalized is the Avoidable interest cost or actual interest whichever is less, So in the present question actual interest of 40,000 will be capitalized
Cost of building after capitalization of interest cost is 470,000 + 40,000 = $510,000
Calculation of depreciation on building using SLM for year 2019 would be as follows:
Assuming fiscal year start from 1st january 2019 and ended on 31st december 2019
Depreciation = 510,000 - 100,000/60 = $6833.33
Book value on 31st december 2019 = 510,000 - 6833.33 = 503,166.67
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