Accounting recognition of land in IFRS

Under paragraph 58 of IAS 16, land and buildings must be accounted for separately, even if jointly acquired.

Lands have an unlimited useful life and, for this reason, should not be depreciated.

That is, if an entity acquires a build for 2 million where 20% corresponds to land and 80% to buildings, the company must separate the part that does not correspond to land to calculate the depreciation for the period.

However, there are cases where a land should depreciate.

Paragraph 59 of IAS 16 establishes that if the cost of land includes dismantling, relocation, and rehabilitation, the portion that corresponds to the restoration of the land will be depreciated over the period in which the entity obtains the benefits from having incurred those costs.

Land recognized as investment properties:

Paragraph 8 of IAS 40 sets out some examples of land that is considered investment property:

  • Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of business.

  • Land held for a currently undetermined future use.

  • A building owned by the entity (or a right-of-use asset relating to a building held by the entity) and leased out under one or more operating leases.

  • A building that is vacant but is held to be leased out under one or more operating leases.

  • Property that is being constructed or developed for future use as an investment property.

Land that is considered investment property is recognized in the first time at cost and then at fair value if it can be measured reliably, otherwise, it will be accounted for using the cost model.

Land recognized as assets held for sale:

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