Why isn't land depreciated?

Definition of Land

The land that is used in a business (as opposed to land that is an investment, or land that will be sold by a real estate developer) is a tangible asset that is assumed to have an unlimited life. Therefore, the cost of the land is not depreciated.

The land used in a business will be reported on the company's balance sheet under the asset heading of property, plant and equipment.

Example of Land

Assume that a company purchases a warehouse for its business operations. The warehouse was built on a 10-acre parcel of land that is included in the property's cost of $1,600,000. A real estate appraisal indicates that the land has a current value of $400,000 and the warehouse building has a current value of $1,200,000.

The transaction will be recorded with a debit of $400,000 to the asset Land, and a debit of $1,200,000 to the asset Warehouse Building. The $400,000 allocated cost of the land is not depreciated, while the warehouse building's allocated costs of $1,200,000 will be depreciated over the warehouse building's years of useful life.

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