depreciation

 The value of any asset diminishes with its usage due to the deterioration, wear and tear. But the usage of land does not lead to its wear and tear. Land is probably the most commonly encountered property that is not depreciable

The depreciation leads to such state of asset whereby the book value is almost nil. This is its scrap value and normally restricted to 5% of the original cost.

Land has no scrap value due to its usage. In-fact value of the Land always appreciates and does not depreciate.

Building standing above the land depreciates but not the land.

In general, property that you own can be depreciated if it meets all of the following requirements:

1. It is used in a trade or business or held for the production of income as an investment property.

2. It has a finite period of usefulness in your business that can be estimated with some confidence, and that is longer than one year.

3. It wears out, decays, gets used up, becomes obsolete, or loses value from natural causes.

However, Land by its nature, doesn’t fulfil all the three criterias explained above...

Second view is about the practical implications---

Example :  a Motor Car, which is a tangible fixed asset and is subject to wear and tear. Its value declines with passage of time and its usage. Practically, no one would buy second hand motor car at its original price.

But, in practical practically neither any land is being sold at the price lower than its purchase price even after a few years of usage.

SO, DEPRECIATION IS NOT CHARGED ON LAND..



Regards