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Land and Building

Land is classified based on its nature and purpose - as property, plant, and equipment; investment property; or inventory. Land improvements that do not depreciate are added to the land cost, while depreciable improvements are separately tracked. Special assessments are also added to land cost. Real property taxes are usually expenses unless assumed by a new owner. Buildings purchased or self-constructed include all direct acquisition or construction costs. Sidewalks and parking lots may be building or land improvement costs depending on the context. Fixtures are building costs if permanent and inventory if movable. Installed systems like lighting are building costs, while later additions are improvements. Demolition costs of an old building are treated differently depending on the new building

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285 views2 pages

Land and Building

Land is classified based on its nature and purpose - as property, plant, and equipment; investment property; or inventory. Land improvements that do not depreciate are added to the land cost, while depreciable improvements are separately tracked. Special assessments are also added to land cost. Real property taxes are usually expenses unless assumed by a new owner. Buildings purchased or self-constructed include all direct acquisition or construction costs. Sidewalks and parking lots may be building or land improvement costs depending on the context. Fixtures are building costs if permanent and inventory if movable. Installed systems like lighting are building costs, while later additions are improvements. Demolition costs of an old building are treated differently depending on the new building

Uploaded by

ber ting
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

1. Explain the classification of land in the statement of financial position.

It depends on the nature and purpose of land. Land used as a plant site - PPE Land held for a
currently undetermined use - investment property Land is held definitely as a future plant
asset - PPE Land held for long-term capital appreciation - investment property Land held for
current sale - inventory

2. Explain accounting for land improvements.


Land improvements not subject to depreciation are charged to the land account. Land
improvements that are depreciable are charged to special account "land improvements" and
should be depreciated over their useful life

3. Explain accounting for special assessments


These are taxes paid by the landowner and shall be treated as part of the cost of the land.
4. Explain accounting for real property taxes.
As a rule these are treated as outright expense but if unpaid real property taxes are assumed
by the buyer, it is capitalized but only up to the date of acquisition.

5. Explain the cost of building acquired by purchase and by construction

By purchase - cost include the purchase price plus all cost directly attributable to the building

By construction - cost includes all cost necessary to construct the building (example, materials, labor,
architect fees, building permits etc)

6. Discuss accounting for sidewalks, pavements, parking lot and driveway.

If such expenditures part of the blueprint for the construction of new building then charged to building
account

If the expenditures are ocassionally made or incurred not in connection with the construction of the
building then charged to land improvements

7. Discuss accounting for building fixtures such as shelves, cabinets and partitions.

If these are immovable charged to building account

If movable charged to furniture and fixtures

8. Discuss accounting for ventilating system, lighting system and elevator

If installed during construction charged to building account

If not then charged to building improvements and depreciated over their useful life or remaining life of
the building whichever is shorter.
9. Explain the acquisition of land and old building which is to be demolished immediately

a. The carrying amount of the usable old building is recognized as a loss if the new building is accounted
for as PPE or investment property

b. The carrying amount of the usable old building is capitalized if the new building ia accounted for as
inventory.

c. The demolition cost minus salvage value is capitalized as cost of the new building whether the new
building is accounted for as PPE, investment property or inventory.

d. The net demolition cost is capitalized as cost of the land if the old building is demolished to prepare
the land for intended use but not to make a room for a new building

10. Explain the treatment if a building acquired and used in a prior period is demolished in the current
period to make room for the construction of a new building

a. The carrying amount of the old building is recognized as a loss whether the new building is ppe,
investment property or inventory

b. Then net demolition cost is capitalized as cost of the new building whether the new building is
accounted for as ppe, investment property, or inventory

c. If the old building is subject to contract of lease any payments to tenants induce them to vacate shall
be charged to the cost of the new building

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