Land takes everything spent to get the ground ready for its intended use, and then sits there.
The purchase price is obvious. Less obvious are closing costs, legal fees, title search, back taxes the buyer assumes, and the cost of clearing the site. Demolishing an old building on newly purchased land is a cost of readying the land, so it is capitalized to land. Any salvage recovered from the demolition reduces that cost. The old building's own carrying amount, if the entity had been using it, is a different question entirely.
Land is not depreciated because its useful life is indefinite. It does not wear out and it is not consumed by use. That single exception is why the split between land and everything built on it matters. Allocating too much of a lump-sum purchase price to land understates depreciation for decades. Allocating too little overstates it.
The exception is about use, not about value. Land held for resale by a developer is inventory. Land held for a future plant is an investment, not property, plant, and equipment, until the entity starts using it.
Make the readiness claim explicit
The historical-cost principle in ASC 360-10-30-1 uses the asset's intended location and condition as its boundary. It does not make every site invoice land.
Record the purchase terms, purpose of demolition, salvage proceeds, grading work, readiness date, and resulting asset. A replaceable parking lot or fence has a limited life and belongs outside land. A building also remains separate.
Work through the Cedar property example before the independent property sort. Reconcile the complete expenditure population after classifying each line.
Put the concept to work
Understand this concept
- Explain which costs of acquiring and readying ground are capitalized to land, and say why the account carries no depreciation.
Apply this concept
- Given the costs of a property purchase, decide which are capitalized to land and which belong to land improvements, to buildings, or to expense.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Asset acquisition cost — Apply
To apply this concept: Required. The sorting applies the acquisition-cost rule to a specific purchase.
- Asset acquisition cost — Understand
To understand this concept: Required. Land cost is one application of the general acquisition-cost rule.
- Depreciation — Understand
To understand this concept: Required. The exception from depreciation is part of what defines the account.
Show 1 more prerequisites
- Land — Understand
To apply this concept: Required. Sorting costs requires knowing what the account holds.
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Practice
Common mistaken ideas
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Related concepts
Show 1 more related concepts
Use this idea next
- Land improvement — Understand
Required level here: understand. Required. The account is defined by contrast with land.
- Land — Apply
Required level here: understand. Required. Sorting costs requires knowing what the account holds.