Accounting Textbooks Boundless Accounting Controlling and Reporting of Real Assets: Property, Plant, Equipment, and Natural Resources Components of Asset Cost
Accounting Textbooks Boundless Accounting Controlling and Reporting of Real Assets: Property, Plant, Equipment, and Natural Resources
Accounting Textbooks Boundless Accounting
Accounting Textbooks
Accounting
Concept Version 7
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Cost of Land

Land is recognized at its historical cost or purchase price, and can include any other related initial costs spent to put the land into use.

Learning Objective

  • Describe how land is reported on the financial statements

Key Points

    • Land is defined as the ground the company uses for business operations; it includes ground on which the company locates its headquarters or land used for outside storage space or as a parking lot.
    • Unlike a majority of fixed assets, land is not subject to depreciation.
    • Land is listed on the balance sheet under the section for non-current assets. Increases in market value are disregarded on the balance sheet.
    • At time of sale, the difference between a land's market value and historical cost is recognized as a gain or loss on the income statement.

Terms

  • balance sheet

    A balance sheet is often described as a "snapshot of a company's financial condition. " A standard company balance sheet has three parts: assets, liabilities, and ownership equity.

  • income statement

    Displays the revenues recognized for a specific period and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes. The purpose of the income statement is to show managers and investors whether the company made or lost money during the reporting period.

Full Text

Land and Historical Cost

Land is defined as the ground occupied by a business' operations. This can include a company's headquarters, outside storage space or the company's parking lot.

Land is recognized at its historical cost, or the cost paid to purchase the land, along with any other related initial costs spent to put the land into use.

Land is a type of fixed asset, but unlike a majority of fixed assets, it is not subject to depreciation.

The cost of land is based on its acquisition price.

All costs associated with acquiring land and putting it to use are included in the cost of land.

Land on the Balance Sheet

Land is listed on the balance sheet under the section for long-term or non-current assets. If the land's market value increases over time, its value on the balance sheet remains at historical cost.

For example, land purchased in 1988 for $90,000, would still appear on the December 31, 2010 balance sheet at $90,000, even though its market value is now $300,000. This is based on the assumption that land is acquired for business use and not as an asset held for sale.

Sale of Land

If at a future date the land is sold due to a business relocation or other reason, the difference between the land's market value and its historical cost will result in a gain or loss disclosed on the income statement. If the sale of land results in a gain, the additional cash or value received in excess of historical cost will increase net income for the period. If the sale results in a loss and the business receives less than the land's historical cost, the loss will reduce net income for the period.

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