Salem Company Hired Kirk Construction to Construct an Office Building

question 294

Multiple Choice

Salem Company hired Kirk Construction to construct an office building for £6,400,000 on land costing £1,600,000, which Salem Company owned. The building was complete and ready to be used on January 1, 2018 and it has a useful life of 40 years. The price of the building included land improvements costing £480,000 and personal property costing £600,000. The useful lives of the land improvements and the personal property are 10 years and 5 years, respectively. Salem Company uses component depreciation, and the company uses straight-line depreciation for other similar assets. What is the net amount reported for the building on Salem Company's December 31, 2018 statement of financial position?

• A) £6,132,000
• B) £6,059,000
• C) £5,187,000
• D) £6,240,000
• IFRS:

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Definitions:

Net Price

The price that a distributor will charge a customer after any trade discounts have been subtracted from the list price.

Discount Method

A financing or accounting method where interest and other finance charges are subtracted from the loan amount before the borrower receives funds.

Complement Rates

The relationship between two rates where the sum totals a certain whole, often used in contexts like complementary angles or probability.

Equivalent Single Discount

A single, consolidated discount rate that is equivalent in value to a series of multiple discounts applied successively.