Which Of The Following Statements Is Accurate About The Land Account? (Check All That Apply.)

The correct choices of this multiple choice question are A, C and E, as Land is a Fixed Asset / Non-Current Asset which is expected to be used by the business for a long period of time i.e., more than one year. It is expected that it will provide benefits for more than one year. Unlike building, the land is not depreciated as it is a free gift of Allah (God) as a result it has infinite useful life i.e., a non-determinable useful life.

If land is purchased by the business in good location, then it provides more benefits to the business.

The land account increases on left side or debit side of its T-Account as it has normal debit balance on debit side while it decreases on right side credit side of its t-account as it has negative or unfavorable balance on credit side. For example, if a company purchased land for $5,000,000 for cash, then the entry to record is to land account and credit cash account. The effect of this Business Transaction on Accounting Equation is shown below:

          Assets                       =   Liabilities  +  Equity

                                                              +Land  -Cash                   =

                                                     +$5,000,000  - $5,000,000       =

The left side / assets side of the accounting equation increased by $5,000,000 due to increase in land account and decreased by an equal amount $5,000,000 due to decrease in cash account and hence the equation remained in balance.

The option B is incorrect as it is not an expense but an asset. Also, option D is also wrong choice as on land, the building is constructed for business use. The cost of building includes the cost of office, warehouse or store which is added to the purchase price of building at time of purchasing. These costs are recorded under the account title “Land & Building” and shown on Balance Sheet.