Question - Mary Jones acquired land on which she will construct a new restaurant. A chemical plant had once occupied the site. Government regulations require Miss Jones to clean up the chemical residue before building. The cost of the cleanup is material.
Required:
1. Under current GAAP, an asset is charged with historical cost, which includes the purchase price and all costs incident to getting the asset ready for its intended use.
Defend the historical cost principle. Use the conceptual frame work concepts and definitions in your defense
2. How should Mary, treat the cost of cleanup? Is it a land cost, a building cost, or an expense? Explain.