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    Why Isn't Land Depreciated?

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    Ma. Angela Garcia
    Land used in a business is considered a tangible asset that does not depreciate because it has an unlimited useful life. When a company purchases property like a warehouse that includes land, the land cost is recorded as a separate asset that is not depreciated, while the building cost is depreciated over its useful life. For example, if a company buys a warehouse for $1.6 million that includes $400,000 land and $1.2 million building, the land cost would be recorded as a land asset that does not depreciate and the building cost would be recorded as a depreciating building asset.

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    Why Isn't Land Depreciated?

    Uploaded by

    Ma. Angela Garcia
    39 views4 pages
    Land used in a business is considered a tangible asset that does not depreciate because it has an unlimited useful life. When a company purchases property like a warehouse that includes land, the land cost is recorded as a separate asset that is not depreciated, while the building cost is depreciated over its useful life. For example, if a company buys a warehouse for $1.6 million that includes $400,000 land and $1.2 million building, the land cost would be recorded as a land asset that does not depreciate and the building cost would be recorded as a depreciating building asset.

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    Land used in a business is considered a tangible asset that does not depreciate because it has an unlimited useful life. When a company purchases property like a warehouse that includes land, the land cost is recorded as a separate asset that is not depreciated, while the building cost is depreciated over its useful life. For example, if a company buys a warehouse for $1.6 million that includes $400,000 land and $1.2 million building, the land cost would be recorded as a land asset that does not depreciate and the building cost would be recorded as a depreciating building asset.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    39 views4 pages

    Why Isn't Land Depreciated?

    Uploaded by

    Ma. Angela Garcia
    Land used in a business is considered a tangible asset that does not depreciate because it has an unlimited useful life. When a company purchases property like a warehouse that includes land, the land cost is recorded as a separate asset that is not depreciated, while the building cost is depreciated over its useful life. For example, if a company buys a warehouse for $1.6 million that includes $400,000 land and $1.2 million building, the land cost would be recorded as a land asset that does not depreciate and the building cost would be recorded as a depreciating building asset.

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    Why isn't land depreciated?

    Definition of Land

    The land that is used in a business (as opposed to land that is an investment, or land that will be
    sold by a real estate developer) is a tangible asset that is assumed to have an unlimited life.
    Therefore, the cost of the land is not depreciated.

    The land used in a business will be reported on the company's balance sheet under the asset
    heading of property, plant and equipment.

    Example of Land

    Assume that a company purchases a warehouse for its business operations. The warehouse was
    built on a 10-acre parcel of land that is included in the property's cost of $1,600,000. A real
    estate appraisal indicates that the land has a current value of $400,000 and the warehouse
    building has a current value of $1,200,000.

    The transaction will be recorded with a debit of $400,000 to the asset Land, and a debit of
    $1,200,000 to the asset Warehouse Building. The $400,000 allocated cost of the land is not
    depreciated, while the warehouse building's allocated costs of $1,200,000 will be depreciated
    over the warehouse building's years of useful life.
    Does collecting a customer's accounts receivable affect
    net income?
    Collecting accounts receivable that are in a company's accounting records will not affect the
    company's net income. (Generally speaking, net income is revenues minus expenses.)

    Under the accrual basis of accounting, revenues and accounts receivable are recorded when a
    company sells products or earns fees by providing services on credit. At the point of delivering
    the goods or services, the company debits Accounts Receivable and credits Sales Revenues or
    Service Revenues. When an account receivable is collected 30 days later, the asset account
    Accounts Receivable is reduced and the asset account Cash is increased. No revenue account is
    involved at the time of collection.

    Your question brings to light the difference between a receipt and a revenue. Cash receipts
    from collecting accounts receivable or from the proceeds of a bank loan are not revenues.
    Revenues are amounts that companies earn through their operations by selling products or
    providing services (whether or not cash is received at the time of the sale or service).
    What is the accounting entry when an order is received?
    There is no accounting entry recorded in a company's general ledger accounts when an order is
    received.

    The reason is that a sale or sales revenues has not yet occurred, nor does the company have an
    accounts receivable at this point. Generally, the sale and the related receivable occur when the
    goods are shipped (FOB shipping point) or when the goods are received by the customer (FOB
    destination).

    While there is no accounting entry in the general ledger, it is likely that the company will create
    a record outside of the general ledger to track the order and to schedule various activities that
    will be needed to ship the products to the customer.

    What is the statement of activities?


    Definition of Statement of Activities

    The statement of activities is one of the main financial statements issued by a nonprofit
    organization. It is prepared instead of the income statement issued by a for-profit business.

    The statement of activities focuses on the total organization (as opposed to focusing on specific
    funds within the organization) and reports the following:

     Revenues such as contributions, program fees, membership dues, grants, investment


    income, and amounts released from restrictions
     Expenses reported in categories such as major programs, fundraising, and management
    and general
     The change in net assets resulting from the previous two bullet points

    The statement of activities will have multiple columns in order to report the amounts for each
    of the following classes of net assets: without donor restrictions, with donor restrictions, and
    total.

    Example of Statement of Activities

    The following is an example of a nonprofit's statement of activities.

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