Buildings as Part of Property, Plant, and Equipment - dummies

Buildings as Part of Property, Plant, and Equipment

By Maire Loughran

This category of Property, Plant, and Equipment (PP&E) includes the company-owned structures in which the company conducts business operations. It includes office buildings, manufacturing facilities, and retail shops. If the business owns off-site storage facilities or warehouses, these assets go in the building category, too. Like land, buildings are also known as real property assets.

Unlike land, buildings are depreciable. Also, when preparing a balance sheet for your intermediate accounting class, make sure you list land and buildings separately — it’s a requirement of generally accepted accounting principles (GAAP).

Then breathe a sigh of relief! You presumably aren’t a real property valuation expert, so your intermediate accounting textbook breaks out the value of land versus building for you, when applicable.

The cost of buildings includes all costs you can tie to either the purchase or construction of the building. If the company purchases a building, its cost includes the purchase price plus all closing costs and professional fees, just to name a few possible expenses. An example of professional fees is the fee for the attorney who negotiates the purchase or surveying costs.

If the company constructs the building, costs include material, labor, building permits, and any professional fees, such as fees for site engineers or architects.

If a company purchases land with a teardown structure, the cost of removing the dumpy old building (minus salvage value) is a land cost, not a building cost. Your intermediate accounting textbook may call this the “net razing cost.”