LAND AND BUILD ING

*STATEMENT CLASSIFICATIO N
LAND : a. used as plant site. - property, plant, and equipment
b. held for currently undetermined use - investment property
c. held for long-term capital appreciation - investment property
d. held for current sale by a real estate developer - current asset part
of inventory

Costs chargable to land

a. Purchase price
b. Legal fees and other expenditures for establisi g clean title
c. Broker or agent commission
d. Escrow fees
e. Fees for registration and trasfer of title
f. Cost of relocation or reconstruction of property belonging to others in order
to acquire possession.
g. Mortgages , encumbrances and interest om such mortgages assumed by
buyer
h. Unpaid taxes up to date of acquisition assumed by buyer
i. Cost of survey
j. 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
k. Cost of permanent improvements
Cost of option to buy the acquired land

LAND IMPRO VEMENTS

Non-depreciable land improvemens - charge to land account

D epreciable (useful life) - land improvement account

SPECIAL ASSESSMENTS

 Taxes paid by landowner as a contribution to the cost of public

improvement
 Part of the cost of land

REAL PRO PERTY TAXES

 O utright expense
 Unpaid taxes assumed by tge buyer - taxes are capitalized but up to
date of acquisition only.
BUILD ING ACCO UNT
Cost (by purchase):
a. Purchase price
b. Legal fees and other expenses incurred in connection with the purchase
c. Unpaid taxes up to date of acquisition
d. Interest , mortgage liens and other encumbrances assumed by the buyer
e. Payments to tenance to.induce them to vacate the building
f. Any renovating and remodeling for tge intended use of the building

CO ST ( by means of construction):
a. Material used , labor employed and overhead incurred during the
construction
b. Building permit
c. Architect fee
d. Superintendent fee
e. Cost of excavation
f. Cost of temporary building
g. Expenditures incurred such as interest on construction loans and
insurance
h. Expenditures for service equipment and fixtyres made a permanent part
of the structure
i. Cost of temporary safety fence
j. Safety inspection fee

SID EW ALKS , PAVEMENTS, PARKING LO T , D RIVEW AYS

a. Expenditures part of blueprint of new building- building account

b. Expenditures not connected with the construction - land improvements

CLAIMS FO R D AMAGES
 Cost of insurance - building account
 Insurance not taken - outright expense

BUILD ING FIXTURES

 Movable fixtures (shelves and cabinets) - building account or furniture
and fixtures (depreciated)
 Immovable - building account

VENTILATIO N SYSTEM , LIGHTING SYSTEM , ELEVATO R

a. Installed during construction -building account
b. O therwise - Building improvement and depreciated over the usefuo.life
or remaining life of the building, whichever is shorter.
PIC Interpretation on land and building
1. Land and building at a single cost
 Usable O ld building - land and building based on relative fair value
 Unusable old building - land
2. O ld building demolished for the new building
 New building (PPE or Investment property )- carrying amount of usable
old builidng is recognized as a loss.
 New building ( inventory) - carrying amount of the usable old building is
capitalized as cost
 New building( whether the PPE, IP or Inv) - demolition cost minus
salvage value is capitalized as cost of the new building
 O ld builidng demolished to prepare the land for intended use and not
for a new building - net demolition cost is capitalized as cost of the
land.

3. Building acquired is demolished to make room for new building :

 Carrying amouny of old building is recognized as a loss
 Net demolition cost is capatized as a cost of the new building
 O ld buildinh subject to contract lease - any payments to tenance shall
be charge to the cost of the new building

SAMPLE PRO BLEMS:(valix)

1. Airborne Company acquired land and building for P5,500,000 cash at the
beginning of the current year. The land was fairly valued at P2,400,000 and
the building at P3,600,000. The entity incurred the following cost:
Property taxes in arrears 250,000
Building renovation 500,000
Escrow fee 100,000
Real estate commission 200,000

A. W hat is the cost of the land?

Allocated cost to land ( 2,400,000 / *6,000,000 x 5,500,000)

2,200,000
Allocated cost (2,400,000/ 6,000,000 x *550,000) 220,000
2,420,000

*Fair vaue of land and building : 2,400,000 + 3,600,000 = 6,000,000

*Incurred costs: Property taxes 250,000
Escrow fee 100,000
Real estate commission 200,000
550,000
B. W hat is the cost

Allocated cost to building ( 3,600,000/ 6,000,000 x 5,500,000) 3,300,000

Allocatedcost( 3,600,000/6,000,000 x 550,000) 330,000
Renovation 500,000
4,130,000

2. D uring the current year, D auntless Company had the followinh transactions
pertaining to the new office building :
Purchase price of land 600,000
Legal fees for contract purchase land 20,000
Architect fee 80,000
D emolition old building on site 50,000
Sale of scrap from old building and proceeds retained 30,000
by building contractor
Construction cost of new building 3,500,000

A. Cost of land applying PIC Interpretation

Purchase price 600,000
Legal fees 20,000
620,000

B. Cost of building applying PIC interpretation

Architect fee 80,000
D emolition cost 50,000
Construction cost 3,500,000
3,630,000