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Initial Cost of Buildings

Brian Krogol
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All right, let's move on to the next plant asset buildings. So buildings, they're going to be very similar to all the other ones, you're gonna see there's a lot of similarities here, So it's similar to land and equipment purchases, even similar to those land improvement purchases in that sense. So, remember that it's going to include all the costs necessary to make the building ready for use, right? If we can't use the building without taking this expense, well then it's not ready for use and that is included in the cost, that initial cost. Okay, So one little trick with a building is if we if we constructed the building, so we bought the land and we're gonna build an office building on it. Well, if we have to take out a loan to finance that project to build the building itself, we can actually include the interest, the interest from borrowings to finance the project into the cost of the land. Now, that's something you're probably going to deal with in higher level classes, but it's good to know that if we're actually constructing the building, if we're just buying a building, that's different. No, you can't include interest in that case. But if you're building the building, building the building, if you're going to construct the building yourself, well then you can actually include interest on those borrowings for financing the project. Alright, So, remember, buildings are depreciated, right? Buildings are depreciated, just like land improvements, just like equipment only. Land itself is not depreciated and again, it's over the useful life. Alright, so you get get really familiar with that term, We're gonna be dealing with the useful life a lot. So why don't we actually let's pause right here and we'll jump into a practice problem because I think you guys are ready to try and solve what the initial cost and the journal entry would look like for this building. Alright. So it's gonna be really similar to what we did with land. Alright? So if you need to go back and check the land video to get a little more familiar or just jump in and give it a shot. Alright. Let's pause here and then you guys try this one out.