FAR 1 – Land, Building,

and Machinery
3D
 Land Account
Land may be classified as:
1.) an item of Property, Plant and Equipment
2.) an Investment Property
3.) an Inventory
 Cost Chargeable to Land Account
1.) Purchase price
a.) Cost of option to buy the acquired land
2.) Directly attributable costs:
a.) Legal fees and other expenditure for establishing clean title
b.) Broker or agent commission
c.) Escrow fees
d.) Fees for registration and transfer of title
e.) Mortgages, encumbrances, and interest on such mortgages
 Cost Chargeable to Land Account
f.) Cost of relocation or reconstruction of property belonging to others in
order to acquire possession
g.) Payments to tenants to induce them to vacate the land in order to
prepare the land for the intended use
h.) Unpaid taxes up to the date of acquisition
i.) Cost of survey
j.) Cost of permanent improvements
k.) Demolition cost of the old building to prepare the land for its intended
use
 Cost Chargeable to Land Account
3.) Revenue items which may impact the cost
4.) Special Assessments
 Cost Chargeable to Building Account When
Purchased
1.) Purchase price
2.) Directly attributable costs:
a.) Legal fees and other expenditure incurred in connection with the
purchase
b.) Unpaid taxes up to the date of acquisition
c.) Interest, mortgage, liens and other encumbrances on the building
assumed by the buyer
d.) Payments to tenants to induce them to vacate the building
e.) Any renovating or remodeling costs incurred to put a building purchased
in a condition suitable for the intended use.
 Cost Chargeable to Building Account When
Constructed
1.) Direct cost of materials, direct cost of labor, and indirect costs
and incremental overhead specifically identifiable or traceable to
the construction
a.) Materials used, labor employed, and overhead incurred
b.) Architect fee
c.) Expenditures for service equipment and fixtures made a permanent part
of the structure
d.) Sidewalks, pavements, parking lot, and driveways
 Cost Chargeable to Building Account When
Constructed
e.) Building fixtures classified as immovable properties
*Article 415 of the New Civil Code enumerates, among others, immovable
properties which provides that:
(3) Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in
buildings or on lands by the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the tenements;
f.) Ventilating system, lighting system, and elevator
 Cost Chargeable to Building Account When
Constructed
2.) Directly attributable cost
a.) Building permit or license
b.) Cost of excavation
c.) Cost of temporary buildings used as construction offices and tools or
materials shed
d.) Expenditures incurred during the construction period
e.) Cost of temporary safety fences around construction site and cost of
subsequent removal thereof
 Cost Chargeable to Building Account When
Constructed
f.) Safety inspection fee
g.) Superintendent fee
h.) The demolition cost to make room for the construction of the new
building
3.) Revenue items which may impact the cost
 Treatment of the Difference Between the Actual Cost of
Construction and the Price at Which the Constructed Asset Can
Be Purchased
➢Actual Cost < Price IF Purchased from Other Parties = Savings
➢Actual Cost > Price IF Purchased from Other Parties =
a.) Ignore; OR
b.) Loss
 Land and Building Purchased at a Single
Cost
The old building can still be used?
➢Allocate the single cost to land and building based on their relative fair
value.

The old building cannot be used anymore?

➢Allocate the single cost to land only
 Old Building is Demolished Immediately to Make
Room for Construction of a New Building

The new building is classified as either Property, Plant, and

Equipment or Investment Property?
➢Treat the allocated carrying amount of usable old building as a loss.

The new building is classified as an Inventory?

➢ The allocated carrying amount of usable old building is capitalized as
cost of the new building
 A Building is Acquired and Used In a Prior Period But
Subsequently Demolished In the Current Period to Make
Room For the Construction of a New Building
➢The carrying amount of the old building is recognized as a loss
 Cost Chargeable to Machinery
1.) Purchase price
2.) Directly attributable costs:
a.) Freight, handling, storage and other cost related to the acquisition
b.) Insurance while in transit
c.) Installation cost, including site preparation and assembling
d.) Cost of testing and trial run, and other cost necessary in preparing the
machinery for its intended use
e.) Fee paid to consultant for advice on the acquisition of the machinery
 Cost Chargeable to Machinery
3.) The initial estimate of the costs of dismantling and removing
the asset and restoring the site on which it is located, the
obligation for which an entity incurs either when the asset is
acquired or as a consequence of having used the asset during a
particular period for purposes other than to produce inventories
during that period.
 Tools
Tools may be classified as:
1.) Hand Tools; or
2.) Machine Tools
 Patterns and Dies
They are used for the regular product?
➢Record them as assets and depreciate them over their useful life

They are used for the specifically ordered product?

➢Record them as part of the cost of the ordered special product
 Equipment
Includes:
1.) Delivery Equipment;
2.) Store and Office Equipment;
3.) Store and Office Furnitures and Fixtures
 Returnable Containers
Containers are returnable?
Yes. Are they containers are in big units or of great bulk?
➢Classify them as an item of property, plant, and equipment
Are they small containers?
➢Classify them as an item of other noncurrent assets
Containers are not returnable?
No.
➢Expense them outright
 Subsequent Expenditures
The cost of replacing part of an item of property, plant, and
equipment is recognized in the carrying amount if:
1.) the recognition criteria for an asset are met; and
2.) it will increase the future service potential of the asset.
 Subsequent Expenditures
The cost of replacing part of an item of property, plant, and
equipment is recognized in the carrying amount if:
1.) the recognition criteria for an asset are met; and
2.) it will increase the future service potential of the asset.
 A.I.R3. (Addition, Improvements/Betterments,
Replacement, Repairs and Rearrangement)

1.) Additions
2.) Improvements/Betterments
3.) Replacement
4.) Repairs
5.) Rearrangement
“The law is the only thing
that's capable of making
people equal.”

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