Overview
The cost of a building includes all necessary expenditures to acquire or construct and prepare the building for its intended use. Buildings consist of relatively permanent structures, including all permanently attached fixtures, machinery and other appurtenance that cannot be removed without damaging the building or the item itself. Buildings are erected for the purpose of sheltering persons or property.
Examples include, but are not limited to such items as academic buildings, dormitories, apartments, barns, etc.
QuickBizNotes
- All buildings costing $100,000 and above should be capitalized.
- Buildings costing less than $100,000 should be expensed.
DEPRECIATION OF BUILDINGS: Normally depreciated over a useful life of 40 years
Buildings Acquired By Purchase
Buildings acquired by purchase should be capitalized at their original cost.
The following major expenditures are capitalized as part of the cost of buildings:
- The original bargained purchase price of the building.
- Cost of renovation necessary to prepare the building for its intended use.
- Cost of building permits related to renovation.
- Unpaid taxes (to date of acquisition) assumed by the institution.
- Legal and closing fees.
Buildings Acquired By Construction
Buildings acquired by construction should be capitalized at their original cost. The following major expenditures are capitalized as part of the cost of buildings:
- Cost of constructing new buildings, including material, labor, and overhead.
- Cost of excavating land in preparation for construction.
- Cost of plans, blueprints, specifications, and estimates related to construction.
- Cost of building permits.
- Architectural and engineering fees.
- Landscaping and other improvements related to the building construction that cannot be separately identified from the building project (e.g. wiring within the building, shrubbery and sidewalks around the building).
Buildings Acquired By Donation
Buildings acquired by donation, or the intent to donate, e.g. for one dollar, should be recorded on the basis of an appraisal of the market value at the date of acquisition. The cost of the appraisal itself, however, should not be capitalized.
Special Notes: Buildings
Removable fixtures
Removable fixtures, including but not limited to furnishing for the new building, should be distinguished from the cost of the building and capitalized or expensed in the appropriate accounts even if they are acquired as a part of the purchase or the construction project.
Building acquired but immediately removed
The cost of a building that is acquired but immediately removed to prepare the land for construction of a new building is treated as part of the cost of the land rather than as part of the cost of the new building.
Removing an old building
The cost of removing an old building that you have occupied in past but that is now deteriorated and must be removed prior to constructing a new building, should be capitalized at a part of the cost of the new building.
The precedent supporting this treatment is the requirement to capitalize all normal costs of readying an asset for use. These normal costs include:
- capitalizing demolition costs of unwanted building(s) with the purchase of land
- capitalizing renovation costs when a building is purchased
- capitalizing excavating costs in preparation for construction of a new building and, when a building is constructed with plans to expand later then any demolition costs are capitalized with the cost of the addition.
Assets near the end of their estimated useful lives
As assets near the end of their estimated lives, the estimates should be reviewed for accuracy of the original estimate and adjusted to reflect the anticipated number of years of continued use.
Any adjustment of estimated lives is a change in accounting estimate and should be applied to current and future depreciation calculations.