Land and building

Generally, land is used for “plant” site and is considered as PPE. But
when the intention towards the land is undetermined or held for capital
appreciation, it should be considered as an investment property. When
the land is held of sale, it is considered as an inventory.

Cost to be considered
 Purchase price
 Direct attributable cost such as;
 Legal fees and other expenditures for legal purposes
 Brokers
 Escrow fee
 Mortgages, along interest
 Unpaid property taxes up to date of acquisition. However
subsequent taxes will be considered outright expenses
 Payments to tenants to vacate from the land
 Cost of permanent improvements, such as leveling, clearing,
landfill, etc. (it differs from land improvement)
 Cost of option to buy the acquired land but considered as an
expense if the said land is not acquired
 Special assessments

Cost of building to be considered when acquired by purchased

 Purchase price
 Direct attributable cost such as;
 Legal fees and other expenditures for legal purposes
 Brokers
 Mortgages, along interest
 Unpaid property taxes up to date of acquisition. However
subsequent taxes will be considered outright expenses
 Payments to tenants to vacate from the building
 Renovation and remodeling cost

Cost of the building to be considered when acquired by construction

 Materials, laborers and overheads
 Legal fees
 Architect fees
 Superintendent fees
 Cost of excavation (it differs from land improvements)
 Cost of temporary construction offices and tools
 Construction loans, along interest during the construction period.
After construction and the loan is still maturing, the subsequent
interest will be considered as an outright expense
 Cost of temporary safety fences, however permanent fences will be
considered as land improvements
 Safety inspection fee

Land Improvement
Certain land improvements are not subjected to depreciation but
instead charged in land account.
 “Cost of permanent improvements, such as leveling, clearing, landfill,
etc.” since they are already part of the cost of the land.
While land improvements that are subjected to depreciation will be
charge to land improvement account
 Such as fences, water systems, drainage systems, sidewalks,
pavements, cost of trees, shrubs, and other landscaping

Sidewalk, pavements, parking lot, driveways

 These expenditures will be charged to building if it was part of the
blueprint in constructing the facility
 However if it is made subsequently the construction of the building
and not connected to the constructions, it will be charged in land
improvements

Building Improvement
 Ventilating system, lighting system, and elevators are charged to the
building when installed during the construction
 Otherwise, it is considered as building improvement

Claim Damages
Negligence of the management resulting damages for injuries should be
considered as an expense. Damages reflect management failure of
negligence in procuring insurance for its employees
PIC on land and building
Land and building can be bought in single cost; lump sum. Allocation of
cost is necessary if;

 The old building is usable, it shall be allocated based on the relative

fair value of the land and the building
 If the old building is unusable, allocation of the single cost should
only be in land

If the usable old building is demolished immediately to make a room for

the new building
 If the property is held for investment or PPE, the allocated cost of
the old building should be considered as loss
 Property is held for inventory or sale, the allocated cost of the old
building should be capitalized for the new building held for sale
 Demolition cost minus salvage value (Net demolition cost) is
capitalized for the new building if the property is held either
investment, PPE, or inventory
 Salvage value is the scraps that can be sold from the old building
that is demolished

Notes:
 In land and building improvements, if the problem is silent, it is
generally recognized as land and building improvements
 Should only capitalized interest if it is incurred if it has connection
with financing the building or land or both
 During construction of the building, any broken windows or certain
materials caused by a third party, replacing them would be
considered as an expense
 Payments to any damages to injuries not covered by insurance is
considered as expense
 Net Demolition cost (Demolition cost minus salvage value) will
always be capitalized in the new building
 Timbers and other natural resources that is sold during the clearing
of land will be deducted to the cost of land