3. When buildings are put up by the concern itself, full cost may

include not only cost of material and labor and a fair proportion of the overhead where supervision of construction is local, but all other expenses directly incurred in connection with construction. These will include architects’ fees for plans and supervision, cost of permits and licenses, interest on borrowed moneys and insurance during construction, accidents and injuries to workmen during the construction period, easements, damages, strike costs, and the like. If the structure is being erected on a site occupied by an old building, the cost of wrecking less any salvage value is a proper charge against the new structure. If bonuses have to be paid tenants in the old building to secure release of their quarters, these, too, are similar charges to the new structure. Charges such as interest and insurance during construction are capital charges only up to the point of fitting the building for occupancy and so making it an operating and income-producing unit. Thereafter these must be treated as revenue charges. Some interesting and at times complicated situations arise when, as in the case of an office building, the structure is occupied in sections as completed. Theoretically, only the portions of the charges of this kind applicable to the completed sections now become revenue charges, the rest still being capitalized so long as sections remain uncompleted. Practically all that is desired is substantial accuracy. The items may be comparatively insignificant but when in doubt the bias should always be on the side of conservatism. Valuation of Buildings In the valuation of buildings a much more difficult problem is encountered after the structure is completed and repairs and alterations are made. It is the old problem of the proper differentiation between capital and revenue charges, and is particularly difficult of solution in some instances. Nothing more can be said here than was stated in Chapter V where the fundamental rules to be observed in distinguishing between repairs, renewals, and betterments were laid down. Changes in interior arrangement to accommodate new fixtures and equipment, or a different distribution and arrangement of existing equipment with a view to better operating conditions require particularly careful handling. Such expenses were mentioned in connection with the treatment of machinery on page 290, and the reader is referred to it. Whatever decision is reached on any doubtful item of this or a similar kind, the supporting vouchers, bills, and papers constituting the full evidence should be carefully preserved and made available for review in case of any future questioning of the charges. Betterments on Leased Buildings In the case of betterments made on leased buildings, provision must be made to write off their entire cost by the time of the expiration of the lease, as they almost invariably revert with the building to the owner. Sometimes the betterment, if material and so agreed as between lessee and owner, may be taken over at a depreciated value upon expiration of the lease. Here depreciation of the betterment must be provided for. Whether all or only part of the cost of the betterment is to be charged off periodically, record of this is best accomplished as an addition to the periodic rent charge. Application of Depreciation As stated above, the basis for valuation of buildings is at full cost less depreciation. It is the method of appraisal, although the inventory may provide a good check in the case of concerns owning many structures. A subsidiary record of buildings showing separate costs and location, or at least a map showing location, may then prove very essential, particularly in the case of fire losses. In the application of depreciation to buildings many things must be carefully considered. Not only must the depreciation of use, i.e., wear and tear and lapse of time, be considered but also obsolescence and inadequacy as factors in shortening the service life of the structure. Buildings used for some purposes deteriorate more rapidly than when put to other uses. Vibrations, whether caused by own use or due to exterior causes, increase the rapidity of deterioration. Susceptibility to fire, explosion, and the like, due to the nature of their use, should be taken into account. It is stated that power plants operating under normal conditions provide for an entire replacement of plant every five years. Power houses depreciate more rapidly than store houses. A building put to various uses will be subject in its different parts to varying rates of depreciation. Although a composite rate applicable to the whole structure will give a satisfactory valuation, if accurate departmental costs are required it would be desirable to apply the different rates to the building values distributed over the various departments. In practice this is seldom done. According to different authorities, rates of depreciation ranging from 1% to 5% constitute a fair average. The nature of the structure, whether occupied by owner or tenant, its location, kind of composition, etc., are additional factors for consideration. While some authoritative rates are available, no standard rates, unless compulsory, should be used without a careful study of local conditions. Structures which are temporary should, of course, be charged for their net cost, i.e., full cost less salvage value, against the product or the job which makes use of them. Other cheap structures such as mine buildings, shaft houses, temporary housings for lumber mills, and the like, should be written down very rapidly. Having practically no realizable salvage value and their life being brief, they should be charged off the books at least during the period of their use. Buildings owned as a freehold for life, or, stated otherwise, a life interest in buildings, are not subject to depreciation, the remainderman taking the building in its condition as released by the party owning the life interest. Accounting for Land In accounting for land as a fixed asset used in the conduct of a business, one or more accounts may be carried as seems best. If the land is in several different plots, perhaps widely separated and each plot held with other groups of assets and under varying conditions as to taxes and other obligations, some plots being subject to mortgages and others not so subject, separate accounts with each plot would be desirable. Otherwise, usually the one account will suffice. The record should be as complete and full as possible. Notation after the title or elsewhere, giving the description and location of the holdings, is an advantage as a means of exact reference. The various items in the account should be supported by full explanatory matter together with documents available for the analysis of the various items and proof as to their legitimacy. It should thus be possible, at any time, to determine the items comprising full cost. The purchase contract price, the attorney’s fees, and broker’s commissions or a fair portion of the purchasing agent’s salary, the costs of search and guarantee of title (if these are borne by the purchaser), notarial and recording fees, the assumption of taxes owing at date of purchase, local improvement taxes and assessments, such as sewer, water, curbing, paving, and the like—all these should be indicated with clearness and definiteness. Where accounts with a “large number” of plots are kept, it may be advantageous to carry these accounts on a subsidiary record specially ruled to give the detailed information desired and control them all by one general ledger account. Local conditions and the information desired will determine the manner of keeping the records. In all cases, the account should carry a notation as to where the supporting legal papers and documents covering each parcel or plot may be found. This prevents much needless loss of time and worry when quick reference to those papers is desired. Valuation of Land The basis for valuing land with unclouded title, as a fixed asset for business purposes has already been clearly indicated. Full cost, usually with neither depreciation nor appreciation, constitutes the valuation formula. By full cost is meant complete cost in condition ready for use or, at least, up to full-title date. In addition to the items enumerated in the preceding section, there may sometimes properly be included such expenses as leveling, grading, filling, and draining. Even the costs of dikes, dams, and embankments, and in the case of railway construction the cost of the care and up-keep of _growing_ trees planted to prevent land or snowslides, tunneling, and the like, may be carried as a part of land costs, although some of these may more accurately be recorded as improvements. In the case of mining land, the cost of stripping the surface to reach the ore body, and the cost of shaft-sinking and of tunneling are proper capital charges and may be recorded under the land account, although preferably under a development account. Whatever costs are necessarily incurred to make the land serve its intended use are proper capital charges and should be recorded in the land account unless better purposes are served by record in some supplementary account. Depreciation or Appreciation of Land The relation of depreciation and appreciation to land valuation is not difficult in theory but is often very perplexing and gives rise to complicated situations in practice. In theory, so long as the land is used for its intended purpose, fluctuations in the market either up or down should not affect the valuation at which it is carried on the books. Just as with the equipment group of assets discussed in