CH 2,recognition of non-current assets

IIbrahim5y ago

Dear Chris, How are you? I hope you are doing well, In example #1 test your understanding it's purchase price of land $250000000 this amounts is included in the cost of construction the building. My question is why the cost of land is included in the cost of construction the building since the building has estimated useful life and of course we are going to calculate depreciation whilst the land has no depreciation expense is this faithful presentation.

P2-D2Tutor5y ago#1

Hi, The building cannot be constructed without the land beneath it, so the two are combined together when the construction is taking place. When they are transferred they are both transferred when the building is being used, i.e. complete, to land and buildings. You cannot transfer the land separately as it is not being used until the building construction is complete. Thanks

IIbrahim5y ago#2

And what about the calculation of the depreciation shall I calculate the depreciation for the whole amount of the building I.e the building itself included the land)? does that count as overstated of depreciation expense charged? Thanks alot.

P2-D2Tutor5y ago#3

No, land is not depreciated. When doing the depreciation calculation you remove the land element and just calculate the depreciation on the building. Thanks

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