Capitalization Rules for Land and Building Costs Steps:

• Review accounting standards (e.g., IAS 16): Capitalize costs directly attributable to acquiring, preparing, and constructing land and buildings for intended use.
• Classify cost 1 (purchase price) as capitalizable for land acquisition.
• Classify cost 2 (repairs) as expensed, not capitalized, as it maintains rather than acquires the asset.
• Classify cost 3 (architectural fees) as capitalizable for building construction.
• Classify cost 4 (routine maintenance) as expensed, not part of initial asset cost. Why B is correct:
• IAS 16 requires capitalizing acquisition costs (1) and construction-related costs (3) to form the asset's carrying amount. Why the others are wrong:
• A includes 2, an expense for ongoing repairs, not initial capitalization.
• C includes 2 and 4, both maintenance expenses, not capitalizable.
• D includes 4, a post-acquisition operating cost, which must be expensed. Final answer: B