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From the estimates, there are various incurred costs to the project. The first item comprised of pre-acquisition costs. These are costs incurred before the property is acquired.
Some good examples of pre-acquisition costs include surveying costs, traffic studies costs, zoning costs, and other such payments. All these costs are incurred before the entity acquires the property. Another incurred cost is the tax and insurance cost which can only be capitalized as property cost only after the necessary steps to get the property ready for the intended use Toolwire essay example started.
Since the project development is yet to commence, tax and insurance costs are not supposed to be capitalized. However, when the property is completed and ready for occupation, tax and insurance costs will not be charged as incurred.
The rental cost incurred during the construction period is also categorized under incurred costs. In some cases, the lessee is given the right to use the leased property before starting operations or paying rent in order to construct a lessee asset.
As per the accounting guidance, it prevents the end user lessee from capitalizing rent under an operating lease into the cost of the constructed asset Dinardo, Capitalized Cost Capitalized cost are direct and indirect costs that are specifically associated with the real estate project being developed.
One of such cost is internal cost associated with property acquisition. These costs occur due to expenses from the internal real estimate acquisition departments.
The staff in these departments search and manage the acquisition of real estate properties. As such, the entity is required to capitalize this internal cost if the costs are directly identified with a specific property.
The costs are capitalized only if the property will be classified as non-operating at the date of acquisition. However, if the property will be categorized as operating at the acquisition date, the cost of internal pre-acquisition cost has to be charged as incurred.
The interest cost is capitalized as a part of the cost of buying a particular asset. However, the cost is only capitalized in the duration during which activities that make the property ready for the intended purpose are in progress.
The other capitalized cost is the project cost. These are costs incurred after the entity has acquired the property. They are associated with development, acquisition, and construction of the real estate project.
Direct project costs are land costs, building materials costs, and project plans costs.
Indirect costs that are also capitalized include construction administration costs like the field office at the site, legal fees, accounting, and design. The costs have to be clearly related to the real estate project. If the costs involve many projects under construction, the cost should be divided among the projects on a rational and consistent basis.
The presumption here is that costs that are incremental to the project are supposed to be capitalized Dinardo, The other capitalized costs are those associated with asset retirement obligation.
These are legal obligations concerned with the retirement of long-lived assets that results from the whole development process.
These are costs incurred from removing, containing, neutralizing, and preventing any feature environmental contamination to the property. They can be voluntary or legal requirements. A good example is the removal of dangerous asbestos and the regulations on how it should be contained and removed Golden, The cost of any demolition of pre-existing structures is also capitalized.
This mainly happens to increase the value of the land when the land happens be more worthy without the structure. If the demolition was not contemplated as a part of an acquisition of the real estate or when it does not occur within reasonable time duration after acquisition, the cost should be charged as incurred.
Costs of increments in operation are also capitalized. These are the costs that would not be incurred except in relation to the incidental operation. The other capitalized cost is that of selling and marketing of the real estate.We will write a custom essay sample on Toolwire specifically for you for only $/page.
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