A purchased building takes its price plus the costs of getting it usable: closing costs, legal fees, and the repairs and remodelling done before the entity moves in.
A constructed building takes materials, labor, and an allocation of overhead, plus interest capitalized during the construction period. Capitalization stops when the asset is substantially complete and ready for its intended use, not when the entity actually occupies it. A building finished in March and left empty until July stops capitalizing in March, and the four idle months carry ordinary interest expense.
The line against repairs is drawn on the same date. Remodelling before occupancy is a cost of readying the asset. The same work three years later is either a repair or an improvement. A repair is expensed. An improvement that extends the life or capacity is capitalized under the rules for later expenditure.
When land and a building are bought together for one price, the price is split between them by relative fair value. That split decides how much of the purchase gets depreciated, and it is one of the easier places for a company to lean on judgment.
Reconcile the building account
ASC 360-10-30-1 sets an intended-location-and-condition boundary for historical cost. ASC 835-20-25-3 sets the start conditions for interest capitalization on a qualifying self-constructed asset. Neither paragraph places land or limited-life site improvements in the building account.
Keep purchase price, construction work, readiness costs, capitalized interest, land, land improvements, and period costs on separate schedule rows. Use the controlled property example before the independent cost-sort task.
Put the concept to work
Understand this concept
- Explain which costs of buying or constructing a structure are capitalized to buildings, and when capitalization stops.
Apply this concept
- Accumulate the cost of a purchased or constructed building from a list of expenditures, including capitalized interest during construction, and stop at the date the asset is ready for use.
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Build on these ideas
- Asset acquisition cost — Apply
To apply this concept: Required. The accumulation applies the acquisition-cost rule.
- Asset acquisition cost — Understand
To understand this concept: Required. Building cost applies the general acquisition-cost rule.
- Avoidable interest — Apply
To apply this concept: Helpful. A self-constructed building capitalizes interest during construction.
Show 2 more prerequisites
- Building — Understand
To apply this concept: Required. Accumulating cost requires knowing what belongs in the account.
- Depreciation — Understand
To understand this concept: Required. Unlike land, the account is depreciated.
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Related concepts
Show 2 more related concepts
Use this idea next
- Building — Apply
Required level here: understand. Required. Accumulating cost requires knowing what belongs in the account.