LAND AND BUILDING
depreciation are charged to land
Statement Classification - Land
Land used as plant site PPE
Land held definitely as a future
plant site owner-occupied
property as part of PPE
Land held for a currently
undetermined use Investment
property
Land held for long-term capital
appreciation Investment
property
Land held for current sale
Inventory
Costs Chargeable to Land
1. Purchase price
2. Legal fees and other
expenditures for establishing
clean title
3. Broker or agent commission
4. Escrow fees
5. Registration fees and transfer of
title
6. Cost of relocation or
reconstruction of property
belonging to others in order to
acquire possession
7. Mortgages, encumbrances, and
interest on mortgage assumed
by the buyer
8. Unpaid taxes up to date of
acquisition assumed by buyer
9. Cost of survey
10.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
new building
11.Cost of permanent
improvements such as cost of
clearing, cost of grading,
leveling and landfill
12.Cost of option to buy the
acquired land
Land Improvements
Improvements not subject to
account
Land improvements not subject to
depreciation:
Cost of surveying
Cost of clearing
Cost of grading, leveling, and
landfill
Cost of subdividing
Land improvements subject to
depreciation:
Fence
Water system
Drainage system
Sidewalks
Pavements
Costs of trees and shrubs and
other landscaping
Special Assessments
Are taxes paid by the landowner
as a contribution to the cost of
public improvements.
Treated as part of the cost of
the land since it increases the
value of the land.
Real Property Taxes
As a rule, real property taxes
are treated as outright expense.
If unpaid real property taxes are
assumed by the buyer in
acquiring land, the taxes are
capitalized but only up to the
date of acquisition.
Costs Chargeable to Building
Purchase price
Legal fees and other expenses
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
Renovation or remodeling costs
Costs of Building When
Constructed
Materials used, labor employed
and overhead incurred during
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 incurred during
the construction period such as
interest on construction loans
and insurance.
Expenditures for service
equipment and fixtures made a
permanent part of the structure.
Cost of temporary safety fence
around construction site and
cost of subsequent removal
Safety inspection fee
Sidewalks, Pavements, Parking
lot, Driveways
If such expenditures are part of
the blueprint for the
construction of a new building,
these are charged to the
building account.
If 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
Insurance taken during the
construction of a building, the
cost of insurance is charged to
the building account.
Claims for damages for injuries
sustained during the
construction and no insurance
was taken payment for
damages should be expensed
outright
Building Fixtures
Expenditures for shelves,
cabinets, and partitions may be
charged to building or furniture
and fixtures depending upon
the nature of expenditures.
If immovable and removal
would destroy the building
charged to building account.
If movable, charged to furniture
and fixtures
Ventilating System, Lighting
System, Elevator
If installed during construction
charged to building account
If not installed during
construction charged to
building improvements and
depreciated over their useful life
or remaining life of the building,
whichever is shorter.
MACHINERY
CAPITAL AND REVENUE
EXPENDITURE
Costs of Machinery
Purchase price
Freight, handling, storage, and
other cost related to the
acquisition
Insurance while in transit
Installation cost, including site
preparation and assembling
Cost of testing and trial run, and
other necessary in preparing
the machinery for its intended
use.
Initial estimate of cost of
dismantling and removing the
machinery and restoring the
 site on which it is located, and
for which the entity has a
present obligation.
Fee paid to consultants for
advice on the acquisition of the
machinery.
Cost of safety rail and platform
surrounding machine
Cost of water device to keep
machine cool
Notes: VAT on the purchase is not
capitalizablecharged to input VAT;
If machinery is removed and retired to
make room for the installation of a new
one, the removal cost not previously
recognized as a provision is charged to
expense.
Tools
Machine Tools
Include drills and punches
Hand Tools
Include hammer and saws
Should be segregated from the
machinery account
Patterns and Dies
Used in designing or forging out
a particular product.
If used for the regular product,
recorded as assets.
If used for specially ordered
product-part of cost of special
product
Equipment
Includes:
Delivery equipment
Store equipment
Office equipment
Furniture and fixtures
Returnable Containers
Include bottles, boxes, tanks,
drums, and barrels which are
returned to the seller by the
buyer when the contents are
consumed.
Containers in big units or of
great bulk (tanks, drums,
barrels) are classified as PPE
while small and individual
amounts (bottles, boxes) are
classified as other noncurrent
assets.
Non-returnable containers are
expensed
Capital Expenditure
Expenditure that benefits the
current period and future
periods.
Reported as an asset.
Revenue Expenditure
Expenditure that benefits only
the current period.
Reported as expense
Recognition of Subsequent Cost
Subsequent cost that will
increase the future service
potential of the asset
CAPITALIZE
Subsequent cost that merely
maintains the existing level of
standard performance
EXPENSE
Future Economic Benefit
Expenditure extends the life of
the property
Expenditure increases the
capacity of the property and
quality of output
Expenditure improves the
efficiency and safety of the
property
Subsequent Cost
Additions
Improvements or betterments
Replacements
Repairs
Rearrangement cost
Additions
Are modifications or alterations
which increase the physical size
or capacity of the asset.
2 types:
1. An entirely new unit
2. An expansion, enlargement or
extension of the old asset
Both types are capitalized but
depreciation for entirely new unit
would be based on useful while for
expansion, depreciation is based on
whichever is shorter between useful
life of the expansion or remaining
useful life of the asset
Improvements or Betterments
Are modifications or alternations
which increase the service life
or the capacity of the asset
hence, capitalized.
Improvements that do not
involve replacement of parts are
added to the cost of the existing
asset.
Examples of Improvements:
A tile roof is substituted for
wooden shingles
A shatter proof glass for
ordinary glass
Replacement of wooden floor by
concrete flooring
Old motor replaced with a new
and powerful one
Replacements
Involve substitution but the new
asset is not better then the old
asset when acquired.
Difference: Improvement is a
substitution for better or superior
quality while replacement is
substitution of an equal or lesser
quality.
Classification of Replacements
Replacement of old asset by a
new one
Replacement of major parts or
extraordinary repairs
Replacement of minor parts or
ordinary repairs
Repairs
Expenditures used to restore
assets to good operating
condition upon their breakdown
or replacement of broken parts.
Classification:
Extraordinary repairs material
replacement of parts involving
substantial amount and normally
extends the life of the asset. Hence,
capitalized.
Ordinary repairs minor replacement
of parts involving small sums and are
frequently encountered. Hence,
treated as expense.
Rearrangement Cost
Relocation or redeployment of
an existing PPE.
Expensed not capitalized
Rearrangement merely
maintains the existing level of
standard performance of the
asset.
Accounting for Major Replacement
If original part can be identified
separately form the replaced
part, the latter is debited to
asset account.
The cost of the part eliminated
and the related accumulated
depreciation are removed from
the accounts and the remaining
carrying amount of the old part
is treated as a loss.
If separate identification is not
practicable, use the cost of the
replacement as the likely
original cost of the replaced
part but the current
replacement cost shall be
discounted.