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Accounting of land and building

Sheetal Belhe (Manager) (24 Points)

19 December 2013

I have one query..

If we buy land on lease and construct the building on the same, then can we can we show the land as lease asset and building as owend asset seperately.?? Also if we show the land on lease basis; then can we amortize the lease rentals paid.

Ragards,

Sheetal

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Z ( ) (2960 Points)
Replied 19 December 2013

Depreciation is not charged on land because it does not has any estimated useful life,it provides benefit for N no. of years but if land is acquired on lease then presuming land is on financial lease,since you are constructing a building thereon, land will have estimated life which will be equal to lease period. If its for 99 years then amortize it over period of 99 years.

We do not have to amortize lease rentals itself but all the lease rentals should be broken down into interest/finance charge and Cost of the land. Deprecition will be available on Cost of land over the life of lease period and interest chrges will be dr. when they occur

Land on financial lease can be showned in owned asset since you are constructive or say beneficial owner but fact that the land is on lease should be mentioned