Definition
The financial accounting term cost of buildings refers to the asset valuation method that applies to buildings appearing on a company's balance sheet. The cost of buildings would include all expenses associated with the acquisition or construction of the building to ready it for use by the company.
Explanation
As is the case with land, companies acquire and construct buildings for several reasons. They can be purchased for speculative purposes, in which case they are considered an investment. Typically, a building is used by the company and is part of property, plant, and equipment.
The cost of buildings appearing on the balance sheet would include:
Purchase Price: includes the price paid to the seller for the structure.
Closing Costs: includes professional fees paid to attorneys, agencies conducting title searches, title insurance, survey costs, as well as fees paid to government entities to register the sale.
Construction Costs: includes materials, labor, and overhead costs associated with the construction of the building.
Fees: includes construction permits, architectural, and engineering design services.
Generally, the cost of a new building starts with the excavation of land to receive the new structure. The cost of demolishing and removing an existing structure from the property, as well as the cost of grading and the clearing of trees, is classified as the cost of land.
Buildings are carried on the balance sheet at historical / original cost and are reduced by the contra asset accumulated depreciation to arrive at net book value. The sale of an asset can result in a gain or loss, which is calculated as the net book value minus the sale price. Gains or loss on the sale of buildings are recorded on the income statement.
Related Terms
Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner's equity in the company. It is one of the four key financial statements issued by public companies.
Moneyzine EditorJanuary 8th, 2024- The financial accounting term property, plant, and equipment is used to describe assets of a long lasting nature, which are used in the normal operation of the company. The most common types of property, plant, and equipment are land, buildings, and machinery.Moneyzine EditorSeptember 21st, 2023
The financial accounting term cost of equipment refers to the asset valuation method that applies to equipment appearing on a company's balance sheet. The cost of equipment would include all expenses associated with the acquisition of the equipment as well as those needed to ready it for use by the company.Moneyzine EditorJanuary 12th, 2024
The financial accounting term cost of land refers to the asset valuation method that applies to land appearing on a company's balance sheet. The cost of land would include all expenses associated with the acquisition of the property, as well as those needed to ready it for use by the company.Moneyzine EditorJanuary 12th, 2024- The financial accounting term self-constructed assets refer to those built by the company and appearing on its balance sheet. The cost of self-constructed assets would include direct costs such as materials and labor associated with its construction. Companies can optionally allocate a portion of indirect costs to the asset too.Moneyzine EditorSeptember 21st, 2023
The financial accounting term accumulated depreciation is used to describe a contra asset account that summarizes the total of all the depreciation of an asset that has occurred at a certain point in time.Moneyzine EditorJanuary 4th, 2024
The term lump sum purchase refers to an agreement that involves a single price paid for a bundle, or group, of assets. Since the lump sum purchase can involve several asset classes, it's necessary to allocate the price paid to each asset so the purchase can be accurately reflected on the company's balance sheet.Moneyzine EditorJanuary 24th, 2024
The term casualty insurance refers to an agreement whereby in exchange for the payment of a premium, an insurance company assumes some, or all, of the risk associated with the loss of assets due to fire, storms, theft and accidents.Moneyzine EditorJanuary 10th, 2024
