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    Land: Capitalizable Costs

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    Overview

    Land is generally considered to have an unlimited life and is therefore a non-depreciable asset. Its original cost includes various expenditures related to its acquisition and its preparation for use as intended by the buyer.

    Here are expenditures that should be capitalized as a part of the cost of land:

    • Acquisition price
    • Commissions paid related to the acquisition
    • Legal fees related to the acquisition
    • Cost of surveys
    • Cost of an option to buy the acquired land
    • Cost of removing unwanted buildings from the land, less any proceeds from salvage
    • Unpaid taxes assumed by the institution as of the date of acquisition
    • Cost of permanent improvements, including landscaping
    • Cost of improvements that will later be maintained and replaced by other governments, including street lights and sewers
    • Cost of getting the land in condition for its intended use, such as excavation, grading, filling, draining, and clearing

    DEPRECIATION OF LAND: Non-depreciable

    Land Acquired Through Forfeiture

    The capitalizable cost of land acquired through forfeiture should also include the following:

    • all taxes, liens, and other claims surrendered
    • all other costs incidental to acquiring ownership and perfecting title

    Assumption of liens, mortgages, or encumbrances on the property increases the purchase price and should be included in the original cost. A liability should be recognized for the amount of the lien, mortgage, or encumbrance assumed by the institution.

    Land Acquired By Donation

    Land 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, is expensed at the time incurred.

    Special Notes: Land

    1. Costs incurred but the land is not acquired should be expensed.
    2. Land held for investment purposes should be classified as investments rather than as property.
    3. 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.