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Land, Building, and Machinery

LAND ACCOUNT

Statement Classification

Land
Land
Land
Land
Land

used as a plant site

shall be treated as Property, Plant and Equipment.
held for a currently undetermined use
treated as an Investment Property.
held definitely as a future plant site
classified as Owner-Occupied Property.
held for long term capital appreciation
treated as an Investment Property.
held for current sale by a real estate developer
- treated as current asset as part of Inventory.

Costs chargeable to Land

Purchase price
Legal fees and other expenditures for establishing clean title
Brokers 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 mortgages assumed by buyer
Unpaid taxes up to date of acquisition assumed by the buyer
Cost of survey
Cost of clearing and demolishing unwanted old structures, less proceeds from salvage
Payments to tenants to induce them to vacate the land
Cost of permanent improvements such as cost of grading, levelling, and landfill
Cost of option to buy the acquired land. If the land is not acquired, the cost of option is expensed outright.

LAND IMPROVEMENTS

Treatment of Land Improvements

1. Subject to depreciation charged to a special account land improvements.
Examples: fences
water systems
drainage systems
sidewalks
pavements and cost of trees
shrubs and other landscaping
2. Not Subject to depreciation - charged to the land account
Examples: cost of surveying
cost of clearing
cost of grading
levelling and landfill
cost of subdividing
other cost of permanent improvement

SPECIAL ASSESSMENTS
Taxes paid by the landowner as a
contribution to the cost of public
improvements.
Treated as part of the cost of land.
Public improvements increase the value of
land.

REAL PROPERTY TAXES

Treated as outright expense.
However, if unpaid real property taxes are
assumed by the buyer in acquiring land,
taxes are capitalized but only up to the
date of acquisition.

BUILDING ACCOUNT

Cost of Building when Purchased

Purchase Price
Legal fees and other expenses incurred in connection with the purchase
Unpaid taxes up to the date of acquisition
Interest, mortgage, liens, and other encumbrances on the building assumed by the buyer
Payments to tenants to induced them to vacate the building
Any renovating or remodelling costs incurred to put a building purchased in a condition suitable for its intended use
as lightning installation, partitions and repairs.

Cost of Building when Constructed

Materials used, labour employed and overhead 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 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 thereof. However, the
construction of permanent fence after the completion of the building is recognized as land
improvement.

SIDEWALKS, PAVEMENTS,
PARKING LOT, DRIVEWAYS
1. Expenditures are part of the blueprint for
the construction of a new building .
Charged to building account.
2. Expenditures are occasionally made or
incurred not in connection with the
construction of a new building.
Charged to Land improvements.

Claims for damages

Where insurance is taken during the

construction of a building.
Cost of insurance is charged to the building
Where insurance is not taken, payment for
damages should be expensed outright
because the damages represent management
failure or negligence in procuring insurance.

Building Fixtures

1. Expenditures are immovable - charged to

building account.
2. Expenditures are movable charged to
furniture and fixtures and depreciated
over the useful life.

Ventilating System, Lightning

System, Elevator
1. If installed during construction
Charged to building account.
2. Otherwise, they are charged to building
improvements and depreciated over their
useful life or remaining life of the building,
whichever is shorter.

Specific principles on land and

building

If Land and Building are acquired at single cost

Single cost is allocated to the land and building on the basis of their relative value.

If Land and an old Building which is to be razed are acquired at a single cost
Single cost is allocated to the land only
The net cost of razing the building, meaning cost of razing minus salvage, is also charged to
the land account.

If the building owned by the entity is leased to tenants and the building is demolished
to make room for the construction of a new one, any payments to tenants to induce them to
vacate the building shall be charged to the cost of the new building .
- The carrying amount of the old building, if any, and the net cost of demolishing the building shall be
charged to loss on retirement of the old building.

Machinery

Cost normally includes:

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 cost 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 an entity has a present obligation.
Fee paid to consultants for advice on the acquisition of the machine.
Cost of safety rail and platform surrounding machine.
Cost of water device to keep machine cool.