Land, Building and Machinery - 0

Land, Building &
Machinery
JAZEL MAE C. DELMONTE, CPA
ACC 211
Statement classification of Land
Used as plant site PPE
Held for a currently undetermined use investment
property
Held definitely as future plant site PPE
Held for long-term capital appreciation Investment
property
Held for current sale by a real estate Inventory
developer
Cost Chargeable to Land
A. Purchase price
B. Legal fees & other expenditures for establishing clean title
C. Broker’s commission
D. Escrow fees
E. Fees for registration & transfer of title
F. Cost of relocation or reconstruction of property belonging to others in order to acquire
possession
G. Mortgages, encumbrances and interest on 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 (but not to make room for the
construction of new building)
K Cost of permanent improvements such as cost of grading, leveling and landfill
L. Cost of option to buy the acquired land
Land Improvements
-Treatment depends on whether subject to depreciation or
not:
If not subject to depreciation – LAND account
(Ex: Cost of surveying, cost of clearing, cost of grading, levelling and
landfill, etc.)
If subject to depreciation – LAND IMPROVEMENTS

(Ex: Fences, water systems, drainage systems, sidewalks,
pavements, cost of trees, shrubs, etc.) shall be depreciated over their
useful life.
Special Assessment
-are taxes paid by the landowner as a contribution to the

cost of public improvements.
-these are treated as part of the cost of the land because

public improvements increase definitely the value to the
land.
Real Property Tax
-Treated as outright expense.
-However, if unpaid real property taxes are assumed by

the buyer in acquiring land, the taxes are capitalized by
only up to the date of acquisition.
Cost Chargeable to Building
Costs of building when purchased:
A. Purchase price
B. Legal fees and other expenses
C. Unpaid taxes up to date of acquisition
D. Interest, mortgage, liens and other encumbrances on the building
assumed by the buyer
E. payments to tenants to induce them to vacate the building
F. Any renovating or remodeling costs
Cost Chargeable to Building
Costs of building when constructed:
A. Materials, labor and overhead incurred
B. Building permit or license
C. Architect fee
D. Superintendent fee
E. Cost of excavation
F. Cost of temporary buildings used as construction offices and tools or materials shed
G. Expenditures incurred during construction period (interest on construction loans and
insurance)
H. Expenditures for service equipment & fixtures made a permanent part of the structure
I. Cost of temporary safety fence and subsequent cost of removal
Permanent Fence – land improvement
J Safety inspection fee
Sidewalks, Pavements, Parking Lots,
Driveways
If part of the blue print - BUILDING
If occasionally made or incurred - LAND

IMPROVEMENTS
Building Fixtures
Depends on whether:
• Movable – FURNITURE & FIXTURES

• Immovable - BUILDING
Ventilating system, lighting system,
elevator
Depends on whether:
• Installed during construction – BUILDING
• Otherwise – BUILDING IMPROVEMENTS

PIC Interpretation
PIC Interpretation
PIC Interpretation
Summary
Classification of Land with usable Entity’s own
New Building old building building demolished
Item demolished
immediately
Carrying Amount of PPE or investment Regardless of

old building property LOSS classification of new
building,
LOSS
Inventory Capitalized to New
Building
Summary
Reason of Demolition Land with Old Entity’s own building
building demolished demolished
Item immediately
Net Demolition To construct new Capitalized to New Capitalized to New

Cost building Building Building
(Demolition Cost
less Salvage
Proceeds) Other reason than Capitalized to Land
construction of new
building
Cost Chargeable to Machinery
Costs of machinery when purchased:
A. Purchase Price
B. Freight, handling, storage and other cost related to acquisition
C. Insurance while in transit
D. Installation cost
E. Cost of testing and trial run
F. Initial estimate of cost of dismantling and removing the machinery…for which the entity
has PRESENT obligation
G. Fee paid to consultants
H. Cost of safety rail and platform surrounding the machine
I. Cost of water device to keep machine cool
Machinery
* If machinery is moved to a new location
Undepreciated cost of old installation cost – EXPENSE
New installation cost – NEW ASSET
If machinery is removed & retired to make room for the installation

of new one
Removal cost not previously recognized as a provision –
EXPENSE
* VAT – is not capitalizable charged to INPUT TAX

Tools
• Should be segregated from machinery account

Patterns and Dies
• If used for regular products – ASSETS
• If used for specially ordered products – EXPENSE (part of cost)

Cost Chargeable to Equipment
Costs of equipment when purchased:
A. Purchase price
B. Freight & Handling charges
C. Insurance while in transit
D. Installation costs
E. Other costs necessary in preparing them for the intended use
Returnable Containers
• If in big units or of great bulk – PPE
• If small & individually involve small amounts –
OTHER NON-CURRENT ASSETS
• If not returnable – EXPENSED outright
• Capital Expenditure – ASSET

• Revenue Expenditure – EXPENSE
Subsequent cost
RECOGNITION
• It is probable that future economic benefits associated with the
subsequent cost will flow to the entity.
• The subsequent cost can be measured reliably.
• If subsequent cost will increase the future service potential - ASSET

• If subsequent cost will merely maintain the existing level of performance
– EXPENSE
FUTURE ECONOMIC BENEFITS

• Extends the life
• Increases the capacity
• Improves the efficiency and safety
Subsequent cost
a. Additions
b. Improvements or betterments
c. Replacements
d. Repairs
e. Rearrangement cost
Addition
• Additions are modifications or alternations which
increase the physical size or capacity of the asset.
• Types:
- Entirely new unit
- Expansion, enlargement or extension of old asset
• In either case, the cost is capitalized.
• Depreciation:
- new unit – depreciated over the useful life
- expansion – depreciated over the useful life of the
expansion or remaining useful life, w/ever is shorter.
Improvements or Betterment
• These are modifications or alternations which
increase the service life or capacity of the asset.
• The cost is capitalized.
• The improvements that do not involve replacement of

parts are simply added to the cost of the existing
asset.
Replacements
• These involves substitution but the new asset is not
better that the old asset when acquired.
• Classifications:
- Replacement of old asset by new one –
CAPITALIZED
- Replacement of major parts or extraordinary repairs
– CAPITALIZED
- Replacement of minor parts or ordinary repairs –
EXPENSED.
Rearrangement Cost
• This is the relocation or redeployment of an existing
property, plant and equipment.
• Costs are expensed as incurred.

Subsequent cost
ACCOUNTING FOR MAJOR REPLACEMENT
Separate identification is practicable

- debited to the asset account
- cost of the part eliminated and related accumulated depreciation are
removed
- the remaining carrying amount of the old part is treated as a loss
Separate identification is not practicable

- current replacement cost shall be discounted
The end.

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Land, Building &

If subject to depreciation – LAND IMPROVEMENTS

-are taxes paid by the landowner as a contribution to the

-these are treated as part of the cost of the land because

-Treated as outright expense.

-However, if unpaid real property taxes are assumed by

If occasionally made or incurred - LAND

• Movable – FURNITURE & FIXTURES

• Installed during construction – BUILDING

• Otherwise – BUILDING IMPROVEMENTS

Carrying Amount of PPE or investment Regardless of

Net Demolition To construct new Capitalized to New Capitalized to New

If machinery is removed & retired to make room for the installation

* VAT – is not capitalizable charged to INPUT TAX

• Should be segregated from machinery account

• If used for specially ordered products – EXPENSE (part of cost)

• Capital Expenditure – ASSET

• If subsequent cost will increase the future service potential - ASSET

FUTURE ECONOMIC BENEFITS

• The cost is capitalized.

• The improvements that do not involve replacement of

• Costs are expensed as incurred.

Separate identification is practicable

Separate identification is not practicable

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