Which costs can be capitalized when acquiring land?

When acquiring land, the costs that can be capitalized include both the purchase price and any related fees and improvements necessary to prepare the land for its intended use. This includes expenditures such as surveying fees, closing costs, land clearing, grading, and any other costs incurred to make the land usable. These costs are capitalized because they provide future economic benefits to the entity; therefore, including them not only reflects the total investment in the land but also properly aligns with accounting principles.

The purchase price is certainly a significant part, but merely stating the purchase price does not account for the additional expenses that contribute to the overall investment in the property. Interest incurred during the purchase, while it may be a legitimate cost in some contexts, is typically not capitalized as part of land acquisition unless it meets specific criteria related to asset construction. Property taxes, while a cost associated with ownership, do not directly affect the capitalization of the land itself during the acquisition phase.

The capitalization of costs is crucial in presenting an accurate financial position, reflecting all necessary expenditures that are essential for making the land ready for use in operations.