Land Account

Statement Classification
The classification of land on the statement of
financial position depends on the nature and
purpose of the land.
 used as a plant site shall be treated as
property, plant and equipment (PPE)
held for a currently undetermined use is
treated as an investment property
If the land is held definitely as a future
plant site, it shall be treated as part of PPE
held for long-term capital appreciation is
treated as an investment property
held for current sale by a real estate
developer is treated as current asset as
part of inventories
Costs chargeable to land
Purchase price
Legal Fees and other expenditures for establishing
clean title
Broker or agent commission
Escrow fees
Fees for registration and transfer of title
Cost of relocation or reconstruction of property
belonging to others in order to acquire possession
Mortgages, encumbrances, and interest on such
mortgage assumed by the buyer
Unpaid taxes up to date of acquisition assumed by
the buyer
Cost of survey
Costs chargeable to land
Payments to tenants to induce them to vacate
the land in order to prepare the land for the
intended use but not to make room for the
construction of a new building
Cost of permanent improvements such as cost of
clearing, cost of grading, leveling and landfill
Cost of option to buy the acquired land
* If the land is not acquired, the cost of option is
expensed outright.
The treatment on land improvements
depends on whether the improvements
are subject to depreciation or not.
If land improvements are additions to
cost not subject to depreciation, these
are charged to the land account.

Examples
Cost of surveying
Cost of clearing
Cost of grading
Leveling and landfill
Cost of subdividing
Other cost of permanent improvement
 If land improvements are additions to
cost are depreciable, these are
charged to a special account land
improvements.
Fences
Water systems
Drainage systems
Sidewalks
Pavements
Cost of trees, shrubs, and other landscaping

Land improvements should be depreciated over

their useful life.
Special assessments
These are taxes paid by the landowner as a
contribution to the cost of public
improvements.
Treated as part of the cost of land
Special assessments are capitalized as cost of
land because public improvements increase
definitely the value of the land.
 Real Property Tax
As a rule, real property taxes are treated as
outright expense.
However, if unpaid real property taxes are
assumed by the buyer in acquiring the
land, the taxes are capitalized but only up
to the date of acquisition.
Costs chargeable to building
acquired by purchase
Purchase price
Legal fees and other expense incurred in
connection with the purchase
Unpaid taxes up to date of acquisition
Interest, mortgage, liens, and other encumbrances
on the building assumed by the buyer
Payments to tenants to induce them to vacate the
building
Any renovating or remodeling costs to put a
building purchased in a condition suitable for the
intended use such as lighting installations, partitions
and repairs
Costs chargeable to building
acquired by construction
Materials used, labor employed and
overheard incurred during the construction
Building permit or license
Architect fee
Superintendent fee
Cost of excavation
Cost of temporary buildings used as
construction offices and tools or materials shed
Expenditures for service equipment and
fixtures made a permanent part of the
structure
Costs chargeable to building
acquired by construction
Cost of temporary safety fence around
construction site and cost of
subsequent removal thereof.*
Safety inspection fee
Sidewalks, pavements, parking lots,
driveways

Ifsuch expenditure are part of the blueprint

for the construction of a new building, these
are charged to the building account

On the other hand, if the expenditures are

occasionally made or incurred not in
connection with the construction of a new
building, these are charged to land
improvements.
Claims for damages
Where insurance is taken during the
construction of a building, the cost of insurance
is charged to the building because it is
necessary and a reasonable cost of bringing
the building into existence.
 Claims for damages
Where insurance is not taken, an accounting
problem arises when the entity is required to
pay claims for damages for injuries sustained
during the construction.
In this regard, it is believed that the payment for
damages should be expensed outright
because the damage represent management
failure or negligence in procuring insurance
and are not a reasonable and necessary cost
of construction.
To charge the damages to the building would
be tantamount to concealment of
management failures and negligence.
Building fixtures
If such expenditures are immovable in the
sense that these are attached to the
building in such a manner that the removal
thereof may destroy the building, then they
are charged to the building account
On the other hand, if such expenditures are
movable, these are charged to furniture and
fixtures and depreciated over their useful
life.
Ventilating system, lighting system,
elevator
Ifinstalled during construction, these should
be charged to the building account.
Otherwise, these are charged to building
improvements and depreciated over their
useful life or remaining useful life of the
building whichever is shorter
1. Land and an old building purchased
at a single cost:
a. If the old building is usable, the single
cost is allocated to land and building
based on the relative fair value
b. If the old building is not usable, the
single cost is allocated to land only.
2. The old building is demolished immediately
to make room for construction of a new
building:
a. Any allocated 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. Any allocated carrying amount od the usable
old building is capitalized as a cost of the new
building if the new is accounted for as
inventory.
2. The old building is demolished immediately
to make room for construction of a new
building:
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. Needless to say, the net demolition cost is
capitalized as cost of land if the old building is
demolished to prepare the land for the
intended use but not to make room for the
construction of a new building.
3. A building is acquired and used in a prior
period but demolished in the current period
to make room for 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. The 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 a contract of
lease, any payments to tenants to induce them
to vacate the old building shall be charged to
the cost of the new building