Purchase of Farmland (Land — Non-Depreciable PPE)
Recording the outright purchase of agricultural land, including transaction costs, as a non-depreciable fixed asset.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Land — Agricultural (PPE — Non-Depreciable) | Asset (+) | 500,000.00 | - |
| Cash / Mortgage Payable | Asset(-) / Liability (+) | - | 500,000.00 |
💡 Accountant's Note
Agricultural land is PPE under IAS 16 but is NOT depreciated because it has an indefinite useful life — the land itself does not wear out (though improvements upon it do). The cost includes purchase price, conveyancing/legal fees, title registration, transfer taxes/stamp duty, and site surveys. Soil improvement costs that permanently enhance the land's productive capacity (e.g., drainage systems installed below ground) may be capitalized as part of the land cost or as a separate infrastructure asset. Agricultural land is tested for impairment under IAS 36 if indicators arise (e.g., contamination, rezoning that reduces agricultural value, flooding damage). Under the revaluation model (IAS 16), farmland can be revalued to fair market value with gains in OCI (revaluation surplus) and losses in P&L to the extent they exceed any prior surplus.
Practitioner & Systems Framework
💻 ERP Architecture
Separately record land from land improvements and buildings — land must never attract depreciation. In jurisdictions with active agricultural land markets, consider whether the revaluation model (IAS 16 para 31) provides more relevant information than historical cost.
⚠️ Audit Flags
(1) No depreciation on land — ensure the ERP is configured to suppress depreciation on land records. (2) Are any 'land improvement' costs (drainage, levelling) correctly separated and depreciated over their useful life? (3) Revaluation frequency — if the revaluation model is used, valuations must be kept current (typically every 3–5 years by a qualified land valuer).
📄 Required Documentation
Title deed, settlement statement, conveyancer/lawyer invoices, survey documents, land valuation report (if revaluation model), and transfer duty receipts.
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