Measuring land from purchased property

First question you may have is “Why would I do this?” Think about depreciation and if land is depreciated in the accounting framework used in your country. If yes, maybe it’s a relevant question. That is if the useful lives are also deemed to be the same as for buildings on top of the land in question. 

However, if it’s not the case and land is not depreciated by the accounting guidelines you apply, it’s a very relevant question. Yes ,in some cases you may actually only buy the building and not the land (i.e. if the house is movable, it’s a building right and so on), but lets presume it’s not the case either and you actually got ownership both over the land and building on top of it.

So how would you separate the land from the total purchase? There are actually two options:

1.       Choose the ratio from the company’s balance sheet you acquired it from (that is of course if the information is available and reliable);

2.       Order a valuation on the land from an expert. The valuation should be done on the basis that the building is not on the property by the way. Why? Well, simply because building affects the value of the land and we want the value of the land on its own.

And that’s that. Once you get the value of the land, you deduct it from the total acquisition and show it on it’s own account not depreciating it.