CHAPTER 34 LAND AND BUILDING LAND ACCOUNT Statement classification The classification of land in the statement of financial position depends on the nature and purpose of the land Land used as a plant site shall be treated as property, plant and equipment Land held for a currently undetermined use is treated as an Investment property However, if the land is held definitely as a future plant site, it is classified as owner-occupied property and not an investment property and therefore shall be included in property, plant and equipment This accounting treatment is in accordance with paragraph 9 of PAS 40. Land held for long-term capital appreciation is treated as an investment property. Land held for current sale by a real estate developer as ine case of subdivided lots is treated as current asset as pa inventory. 1145Costs chargeable to land a, Purchase price een b. Legal foes and other expenditures for establishing clean title c. Broker or agent commission d. Escrow fees «Fees for registration and transfer of title 1 or reconstruction of proper’ yossession interest on such mortgages . belong; f£. Cost of relocation ty belonging to others in order to acquire P g. Mortgages, encumbrances and 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 such as cost of clearing, cost of grading, leveling and landfill 1. Cost of option to buy the acquired land. If the land is not acquired, the cost of option is expensed outright. p Land improvements The treatment of land improvements depends on whether the improvements are subject to depreciation or not. He land improvements are additions to cost not subject 10 epreciation, these ave charged to the land account. Exainples of these expenditures are cost of surveying, cost of clearing, cost of grading, leveling and landfill, cost of g and other cost of permanent improvement. On the other hand, if |; and i rove! ' 5 are charged to a spe improvements are depreciable, thes? account “and improvements.” 1146Costs of building when constructed : The following expenditures are normally charged to the building when acquired by means of constr uction a. Materials used, labor employed and overhead incurred during the construction b, Building permit or license ce. Architect fee a. Superintendent fee e. Cost of excavation f. Cost of temporary buildings used as construction offices and tools or materials shed g. Expenditures incurred during the construction period such as interest on construction loans and insurance: pment and fixtures made a h. Expenditures for service equi) permanent part of the structure. i. Cost of temporary safety fence around construction site and cost of subsequent removal thereof. However, the construction of a permanent fence after the completion of the building is recognized as land improvement. j. Safety inspection fee Sidewalks, pavements, parking lot, driveways A question often arises as to the treatment of expenditures for sidewalks, pavements, parking lot, and driveways. The problem is whether such expenditures should be ‘charged to land improvements or building. : a. If the such expenditures are part of the blueprint for the construction of a new building, these are charged to the building account. b. On the other hand, if the expenditures are occasionally made or incurred not in connection with the construction of anew building, these are charged to land improvements. 1148PIC Interpretation on land an 1 d building Land and an old building are purchased at a single cost: single cost is allocateg a 1 is usable, the If the old building wsabiee Mrelative fair value : Jand and building based on re! to b. If the old building is unusable, allocated to land only the single cost ig The old building is demolished immediately to make room for construction of a new building: amount of the usable old as a loss if the new building is plant and equipment or a. Any allocated carrying building is recognized accounted for as property, iuvestment property. b. Any allocated carrying amount of the usable old building is capitalized as cost of the new building if the new building is accounted for as inventory. c. The demolition cost mius salvage value is capitalized as cost of the new building whether the new building is accounted for as property, plant and equipment, investment property or inventory. d. Needless to say, the net demolition cost is capitalized as cost of the land if the old building is demolished to prepare the land for the intended use but not to make room for the construction of new building. A building 1s acquired and used in a prior period but demolished in the current period to make room for construction of a new building: a The carrying amount of the old building is recognized or loss, whether the new building is property, plant and equipment, investment property or inventory. b. The net demolitio coe ae n cost is capitalized as cost of the fer pading whether pele building is accounte or as property, plant and e ant. investment property or inventory quipment, invest™ © Hf the old building is subject to a contract of lease, anY DAVINENLS to te q y sents to tenants to mduce them to vacate the ©! busiding she Qe char v building tall be charged to the cost of the new 1150