Land

Definition

The financial accounting term land is defined as naturally occurring resources such as soil and mineral deposits.  Land is classified as a tangible asset on a company's balance sheet.

Explanation

Land is the only part of property, plant, and equipment that is not subject to depreciation.  Since land has an unlimited term of existence, it does not depreciate over time; it is not consumed as part of normal business operations.

The cost of land should include all of the incidental expenses to acquire the property, such as real estate commissions, escrow, and surveying.  Some improvements to land, for example landscaping or grading, are considered permanent; as such these improvements are not depreciated.

Improvements such as driveways and fencing are not considered permanent since they have a limited term of service.  These improvements are subject to depreciation; therefore, these assets should not be included in the long term asset category of land appearing on the balance sheet.

Related Terms

property, plant and equipment, tangible assets, depletion