Building

Building acquired by purchase

By construction self-constructed PPE
By construction constructed by a contractor
Purchase price
Brokers or realtors commission
Legal fees and other expenses in connection with the purchase
Title and escrow fees
Renovating and remodeling costs (such as lighting and ventilating installations,
partitions and repairs)
Alteration and improvement costs
Liens, mortgages or encumbrances on the property as of date of purchase (if
assumed by the buyer)
Accrued interest payable up to date of purchase (if assumed by the buyer)
Building permit fees for renovation
Payments to induce tenants and other occupants to vacate the building
Immovable building fixtures (cabinets, shelves and partitions)
Any other costs incurred to put the building in a condition suitable for its intended use

Plus: Subsequent costs that meet the recognition criteria

Materials, labor and overhead incurred and identified with the construction
Architects fee for new building
Plans, specifications and blueprints
Excavation costs
Building permit and license fees
Safety inspection fee
Workmens compensation and accident insurance premiums for workers
Fire insurance premium (during the construction period only)
Cost of temporary quarters for construction crew
Cost of temporary building as construction office
Cost of temporary structure to house tools and materials
Capitalizable borrowing costs (incurred during the period of construction)
Costs of shelving, cabinets or partitions
Cost of temporary fencing due to building construction and cost of removal thereof
Expenditures for service equipment
Expenditures for fixture made a permanent part of the structure (immovable)
Costs of ventilating system, lighting system, elevator and escalator (if installed during
construction)
Clerical and other expenses of construction
All other costs that are necessary to prepare the building suitable for its intended use

Plus: Subsequent costs that meet the recognition criteria

Payment of contract price
Architects fee for new building
Plants, specifications and blueprints
Building permit fees for new construction
Capitalizable borrowing costs (incurred during the period of construction)
Cost of changes during construction to make new building more energy efficient
Other construction costs not included in the contract price
All other costs that are necessary to prepare the building for its intended use

Plus: Subsequent costs that meet the recognition criteria

Note: Cost of demolishing an old building to make room for the construction of a
new one should not be included as part of the cost of the new building.

Examples of items that are excluded from the cost of self-constructed building:
Internal profits or savings on construction
Imputed interest on companys own money used during construction
Interest that could have been earned if the funds used in construction were invested
in marketable securities this is an opportunity cost that is not entered in the books of
accounts. Self-constructed asset should be charged for the actual costs incurred in
its completion.
Cost or construction inefficiencies (such as modifications to new building due to poor
planning by management) this expenditure is not a necessary expense for the asset
and it was incurred as a result of the companys negligence and could have been
avoided had proper planning been done
Cost of abnormal amounts of wasted material, labor, or other resources incurred in
self-constructing an asset
Borrowing costs which do not meet the criteria for the recognition of interest as a
component of the carrying amount of a self-constructed PPE item
Payment of medical bills for inspection team who accidentally injured during
inspection
Claims for damages for injuries sustained during construction (the cost of insurance
that could have been incurred is not deductible)
Legal costs of injury claim
Payment of claim injuries not covered by insurance
Materials not used or not yet used in the construction
Material
Cost of permanent fencing and cost of removal thereof should be charged to land
improvements
Cost of open house party to celebrate opening of new building
Cost of windows broken by vandals distracted by the celebration
Income and related expenses through using a building site as a car park until
construction starts incidental operations occurring before or during the construction
or development activities are recognised in profit or loss because incidental
operations are not necessary to bring an item to the location and condition
necessary for its intended use

Improvements

Land improvements
Building improvements
Leasehold improvements

Description:
these are improvements on land that are not permanent in nature
Depreciation:
to be depreciated over their respective estimated useful lives

Examples:
Costs of pavements
Costs of sidewalks
Costs of driveways
Costs of parking lots
Costs of fences
Costs of water system, sewage or drainage system
Costs of trees, shrubs and other landscaping
Costs of waiting sheds
Costs of installing lights in parking lots, sidewalks or driveways

Note:
Plus: Subsequent costs that meet the recognition criteria

The following costs should be charged to the cost of the newly constructed building if
they are part of the blueprint for the construction of a new building:
Costs of pavements
Costs of sidewalks
Costs of driveways
Costs of parking lots
Description:
these are improvements to building after its acquisition;

Depreciation:
Usually accounted for separately and depreciated over their respective useful lives
or the useful life of the building, whichever is shorter

Examples:
Boilers, heating and ventilating systems
Plumbing and lighting system
Elevators
Escalators
Wiring and piping installations

Note: If installed during construction or in putting the building purchased in a

condition suitable for its intended use, the above costs should be charged to the
building account.

Plus: Subsequent costs that meet the recognition criteria

Description:
improvements to the leased property/facility that revert to the lessor at the end of the
lease term

Depreciation:
to be depreciated over their respective useful lives or the lease term, whichever is
shorter

Examples:
Building or structure constructed on a lease land
Immovable fixture in a leased building

Plus: Subsequent costs that meet the recognition criteria

Equipment normally includes machinery, office and store equipment, delivery,

laboratory, service, environmental or safety equipment, furniture and fixture, tools,
pattern and dies, and returnable containers

Machinery
Other Equipment
Purchase price
Non-refundable or irrecoverable taxes and duties on purchase
Freight, unloading, delivery, handling and other costs related to the acquisition
Insurance while in transit
Installation or set-up costs, including site preparation and assembling
Cost of testing or trial runs and other costs in preparing the machinery in its intended
use (net of proceeds from sale of sampled items)
Salary of engineer/technician for the duration of the trial run
Allowances, hotel accommodations, etc. paid to foreign technicians
Fees paid to consultants for advice on the acquisition of the machinery
Cost of safety device and platform surrounding machine
Cost of water device to keep machine cool
Other costs that are necessary in bringing and preparing the asset for its intended
use
Initial estimate of dismantling costs (at present value at date of acquisition) for which
the entity has present obligation

Plus: Subsequent costs that meet the recognition criteria

Purchase price
Non-refundable taxes and duties on purchase
Freight, unloading, delivery and handling costs
Insurance while in transit
Installation costs
Other costs that are necessary in bringing and preparing the asset for its intended
use

Plus: Subsequent costs that meet the recognition criteria

Examples of items that are excluded from the cost of machinery/equipment:

Cost of training personnel to operate the new machine
Cash discounts, whether taken or not
Cost of moving old machine to a new location
Cost of removing old machine that is replaced
Cost of spare parts to cover breakdowns
Operating cost during regular use of the new machine
Cost of repairing new machine damaged in the process of installation
Cash allowance granted by the vendor
Gratuity paid to operator of old machine who was laid off
Estimated dismantling cost that is not a present obligation
Interest charges for acquiring the new machine on deferred credit
Motor vehicle registration fees should be expensed when incurred.
Recoverable/refundable/creditable taxes on purchase (ex. VAT on purchase)