Sunny Skys,Inc.bought a derelict hunting lodge,which it tore down at a cost of $45,000 and replaced with a new lodge.The demolition cost should be:
A) expensed .
B) capitalized.
C) a liability.
D) an addition to contributed capital.

Question

Quizplus · Accepted Answer

The cost of demolishing an existing building to make way for a new building should be capitalized as part of the cost of the new asset. This is because it is necessary to incur the cost of demolition in order to construct the new asset.