Which of the following is included in the cost of constructing a building?

• A. Advertising costs for the building's opening
• B. Interest expense incurred after the building is ready for use
• C. Architectural fees
• D. Routine maintenance after construction

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'capitalization of costs': In financial accounting, costs directly related to the construction of a building are capitalized, meaning they are included in the asset's cost. These costs are incurred to bring the asset to its intended use and include items like architectural fees, construction materials, and labor.
2. Analyze each option provided: Advertising costs for the building's opening are not directly related to the construction process and are considered operating expenses. Interest expense incurred after the building is ready for use is also not capitalized, as it occurs after the asset is ready for its intended use. Routine maintenance after construction is an ongoing expense and not part of the initial construction cost.
3. Focus on architectural fees: Architectural fees are directly related to the design and planning of the building, which are necessary for its construction. These fees are considered part of the cost of constructing the building and are capitalized.
4. Apply the principle of capitalization: Only costs that are directly attributable to the construction and preparation of the building for its intended use are included in the building's cost. Architectural fees meet this criterion, while the other options do not.
5. Conclude the analysis: Based on the principles of financial accounting, architectural fees are included in the cost of constructing a building, while advertising costs, post-construction interest expense, and routine maintenance are excluded.