Prepared by: Ms. HAZEL JADE E.

VILLAMAR
E-mail Address: _hazeljade.villamar@clsu2.edu.ph________

Central Luzon State University

Science City of Muñoz 3120
Nueva Ecija, Philippines

Instructional Module for the Course

ACCTG 2105 / Intermediate Accounting 1

Module 5
Topic 3 (LAND AND BUILDING)

Overview

This course covers the detailed discussion, appreciation, and

application of the Philippine Financial Reporting Standards (PFRS) on the
assets, financial and non-financial of a business enterprise. Emphasis is
given on the interpretation and application of the accounting standards on
Financial Assets and their required disclosures. The related internal control,
ethical issues and management of assets are also covered. Exposure to
computerized system in receivables, inventory and lapsing schedules is a
requirement.

I. Objectives

At the end of the module, the following are expected:

A. Identify the items that are included in the “Property, Plant and
Equipment” line item.
B. Define Government Grant.
C. Account for borrowing costs.
D. Prepare a depreciation and depletion schedule.
E. Account for impairment of assets.
 ACCTG 2105 / Intermediate Accounting 1

II. Learning Activities

LAND AND BUILDING

Definition
Land is classified as property, plant and equipment depending on the nature and
purpose of which land is used in the entity’s operations.
The following items of land are not classified as PPE:
a. Land held for current sale by a real estate developer- classified as
“Inventory”
b. Land held for long-term capital appreciation- classified as “Investment
property”
c. Land held for currently undetermined use- classified as “Investment
property”
d. Land held as site for a building constructed for future use as investment-
classified as “Investment property”
e. Land leased out under operating lease- classified as “Investment property”

Cost of land
a. Purchase price including broker’s commission
b. Closing costs such as titling costs, attorney’s fees and recording fees
c. Costs incurred for getting the condition of the land for intended use
d. Unpaid taxes prior to the date of acquisition. Taxes incurred after acquisition
is treated as outright expense.
e. Mortgages, liens, or encumbrances on the land
f. Special assessments for local government-maintained improvements such
as pavements, street lights, sewers and drainage systems
g. Options paid to acquire land
h. Costs to induce tenants to vacate premises and costs of relocating and
reconstructing property belonging to others
i. Costs of future restorations for which an entity has present obligation
j. Land improvements that have indefinite useful life such as draining,
grading, leveling and filling, surveying, subdividing, and other permanent
improvements

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 ACCTG 2105 / Intermediate Accounting 1

Cost of land improvement

Land improvements are enhancements to the land that have a definite useful life,
thus, it is not subject to depreciation. Land improvements such as private
driveways, walks, fences, parking lots, drainages and water systems, cost of trees,
shrubs, plants and other landscaping are segregated from the cost of land and
depreciated over their estimated useful lives.

Building account
Building is classified as property, plant and equipment depending on the nature
and purpose of which land is used in the entity’s operations. Building used as
“owner occupied” property and used for administrative purposes is also classified
as PPE.
The following items of building are not classified as PPE:
a. Building held currently for sale in the ordinary course of business- classified
as “Inventory”
b. Building held as leased asset by the entity and leased out under one or
more operating leases- classified as “Investment property”
c. Building that is vacant but is held to be leased out- classified as “Investment
property”
d. Building constructed for future use as investment property- classified as
“Investment property”

Cost of building when purchased

a. Purchase price including broker’s commissions and legal fees
b. Mortgages, liens, or encumbrances of the building
c. Options paid to acquire building
d. Unpaid taxes prior to the date of acquisition. Taxes incurred after acquisition
is treated as outright expense.
e. Costs to induce tenants to vacate premises
f. Costs incurred for getting the condition for its intended use such as
remodeling, renovations and other repairs prior to occupancy. Repairs and
maintenance costs after getting the condition for its intended use of the
building is treated as an expense.

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 ACCTG 2105 / Intermediate Accounting 1

Cost of self-constructed building

An entity may choose to construct its own building rather than having it
purchased. The following expenditures are normally incurred when building is
constructed:
a. Manufacturing costs such as materials, labor, and overhead costs during
construction
b. Architect fee, supervision fee and cost of building permit
c. Insurance costs and safety inspection fees
d. Cost of temporary building used as safety fence, construction offices, and
tools or materials shed
e. Interest on borrowings made to finance construction
Costs such as private driveways, walks, permanent fences, parking lot, and
drainages and water systems that are not included in the blueprint of the building
are capitalized as land improvement. Thus, if they are included in the blueprint,
they are capitalized as a cost of the self-constructed building.

Cost of building improvement

a. Items which are not included in the purchased building or in the blueprint
of a self-constructed building.
b. Ventilating systems, lighting systems and plumbing installed after the
construction. However, if installed during construction, they are capitalized
to the building account.
c. Building fixtures which are movable are charged to furniture and fixtures
account and depreciated over their useful life.

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 ACCTG 2105 / Intermediate Accounting 1

References

Intermediate Accounting Volume 1, 2019 by Valix, Peralta & Valix

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