The Capitalized Cost of Land Calculation

How is the capitalized cost of land calculated?

What are the components involved in determining the capitalized cost of land?

Answer:

The capitalized cost of land is calculated by taking the total cost of the land purchase and deducting any liabilities that can be assumed by the buyer. Let's break down the components involved in determining the capitalized cost of land:

1. Purchase Price of the land: $122,900

2. Past-due property taxes: $10,800

3. Nonrefundable taxes on purchase: $2,100

4. Title search cost: $800

The total cost of the land purchase is calculated by adding all these components together:

Total Cost = Purchase Price + Past-due taxes + Nonrefundable taxes + Title search cost

Total Cost = $122,900 + $10,800 + $2,100 + $800

Total Cost = $136,600

Finally, to determine the capitalized cost of the land, we deduct any liabilities that can be assumed by the buyer. In this case, the capitalized cost is calculated as follows:

Capitalized Cost = Total Cost - Past-due taxes

Capitalized Cost = $136,600 - $10,800

Capitalized Cost = $125,800

Therefore, the capitalized cost of the land in this scenario is $125,800.