Chapter 13 Land Building

Chapter 13 - Land, Buildings, and Equipment
Section 1301 - Introduction

1301.01
1301.02
1301.03
Framework
Types of Accounts
Fund Accounting
Section 1302 - Nature of Land, Buildings, and Equipment

1302.01
1302.02
1302.03
1302.04
1302.05
1302.06
1302.07
1302.08
1302.09
Land
Land Improvements
Buildings
Equipment and Furnishings
Leased Equipment
Leasehold Improvements
Donated Assets
Minimum Cost Policy
Authorization for Acquisitions
Section 1303 - Depreciation Principles and Policies

1303.01
1303.02
1303.03
1303.04
1303.05
1303.06
1303.07
Nature of Depreciation
Distribution of Expense
Accumulated Depreciation
Expense versus Funding
Depreciation Rates
Fractional Years
Annual and Monthly Depreciation
Section 1304 - Other Plant Asset Accounting Principles

1304.01
1304.02
1304.03
1304.04
Subsidiary Records
Liabilities for Plant Assets
Net Asset Components
Accountability for Existence of Assets
Section 1305 - Disposition of Capital Assets

1305.01
1305.02
1305.03
Scope of the Section

Authorization for Disposals
Accounting for Equipment Trade-ins
Section 1306 - Fund Accounting for a Plant Fund

1306.01
1306.02
1306.03
1306.04
1306.05
1306.06
1306.07
1306.08
Number of Funds
Unexpended Plant
Invested in Plant
Statement of Financial Position
Statement of Financial Activity
Statement of Changes in Net Assets
Transfers
Balances and Activity by Asset Class
SDA Accounting Manual - October 2008
Appendix 13A - Legal Considerations

13A.01
13A.02
13A.03
13A.04
13A.05
13A.06
13A.07
13A.08
13A.09
13A.10
13A.11
Property Laws
Title to Real Property
W hose Financial Statements Should Include the Assets?
Application to Lease Agreements
Denominational Policy
Legal Entities
Agreements Between Affiliated Entities
Properties Used By Local Congregations
G uidance for V arious Situations
Concerns About Ascending Liability
Additional Legal Concept in USA
Appendix 13B - Accounting Entries Illustrated - Single Fund M odel

13B.01
13B.02
13B.03
13B.04
13B.05
13B.06
13B.07
Introduction
Acquisition of Assets
Construction in Progress
Depreciation of Assets
Disposition of Assets
Payment of Long-Term Liabilities
Funding for Future Replacement
Appendix 13C - Accounting Entries Illustrated - U ndiv ided Plant Fund M odel
13C.01
13C.02
13C.03
13C.04
13C.05
13C.06
13C.07
Introduction
Appendix 13D - Accounting Entries Illustrated - M ultiple Sub -Fund M odel

13D.01
13D.02
13D.03
13D.04
13D.05
13D.06
13D.07
13D.08
Introduction
Local Church Properties (USA G AAP)
Appendix 13E - H ow T o Account For M ajor And M inor R epairs

Appendix 13F - Illustrativ e Content For Property Leases
13F.01
13F.02
Lease of Land O nly

Lease of Land, Buildings, and Improvements
Section 1301 - Introduction

1301.01
Framew ork - Accounting principles require each reporting entity to include in its financial statements
all assets that it owns or has control over. That, of course, includes long-lived assets, which this Manual places in a
group under the term land, buildings, and equipment (see Section 205.04). All such assets should be recorded in
specific groups of accounts, apart from current assets or other operating assets. All assets and liabilities related to
land, buildings, and equipment should correspond to specific non-operating net asset accounts. This will be true
whether the organization uses fund accounting or not.
For land and buildings (also referred to as real property), determining who the owner is, who controls the
assets, and which entity should include those assets in its financial statements can be determined by research and
legal counsel. Appendix 13A contains further discussion about legal considerations. H owever, once it is determined
which assets should be included in the reporting entitys financial statements, the guidance in the following sections
will apply to all those assets.
1301.02
T y pes of Accounts - The accounting records should include separate distinct groups of accounts
to record the following: (1) the historical cost of land, land improvements, buildings, and equipment and furnishings
that are used in the normal operations of the entity, (2) the respective accumulated depreciation on those assets, and
(3) the long-term debt or liabilities, if any, that are related to those assets. W here applicable, the accounting records
should also include a separate group of accounts for investment assets that either have been received with donor
restrictions or have been allocated by governing committee action, for future use to acquire long-lived assets or
liquidate debt related to such assets. Any long-lived assets that are held only for investment or until they can be sold,
should be recorded in a separate grouping with other noncurrent, non-operating assets.
1301.03
Fund Accounting - Conferences/Missions/Fields and other organizations that have complex
groupings of long-lived assets, and corresponding investments, if any, will use fund accounting to record and report
on these asset balances and related financial activity. Section 1306 contains further guidance on this topic.
Section 1302 - Nature of Land, Buildings, and Equipment
1302.01
Land - Land is commonly considered a non-depreciable asset. Its usability does not diminish with
the passage of time, and it remains on the records at its historical cost. The cost of land includes the cash paid or
other objectively-determined fair value at date of acquisition, plus other incidental costs of acquisition, such as fees
and taxes. In other words, cost includes all direct costs involved in securing title to the property. In those cases where
a package price is paid for land and buildings, any fair and reasonable method may be used to divide the total cost
between the non-depreciable land and the depreciable building and improvements. The cost portions thus determined
should be recorded in the respective asset accounts for Land, Land Improvements, and Buildings.

1302.02
Land Improv ements - W hile land itself is not a depreciable asset, the physical improvements
attached to the land are depreciable. This applies to such things as roadways, parking lots, sidewalks, curbs and
gutters, exterior lighting, irrigation systems, and permanent landscaping. Such items by their nature deteriorate over
time, so it is necessary to record them separately, to maintain a record of the individual items involved, and to
depreciate them at an appropriate rate.
1302.03
Buildings - Each identifiable building or structure should be assigned a separate value, a separate
estimated useful life and depreciation rate, and if there is no subsidiary ledger for buildings, an individual general
ledger account. The total cost of a structure includes all additions and modifications necessary to bring the structure
to a condition in which it can perform its expected function. For example, a buildings cost would include repairs or
improvements necessary at the time of its acquisition to put it into usable condition. Interest paid or accrued on
construction loans during the period of construction becomes a part of the building cost, while interest paid or accrued
on loans after the building is occupied and in use is an operating expense reported in the statement of financial activity.
After a buildings total cost is determined, that amount is then reduced by an estimate of the eventual salvage value
of the structure (net of the cost of removal), if any, to arrive at the depreciation base. Then the estimated useful life
of the building and its depreciation rate are determined.
1302.04
Equipment and Furnishings - In general, the same rules which apply to land improvements and
buildings also apply to equipment and furnishings. Individual records should be maintained for each item of equipment
and furnishings, including motor vehicles and equipment acquired under capital leases. The cost of equipment
includes amounts for installation and testing prior to beginning actual use. For example, it may be necessary to build
a concrete base upon which to mount a piece of equipment, or to install special high-voltage wiring to run the
equipment. (Such preparation is rarely necessary for ordinary office equipment, but it can be typical of equipment for
publishing houses or other institutions.) Such installation costs and the cost of testing and adjusting the equipment
prior to its first use in operation should not be charged to expense, but should be added to equipment cost.
1302.05
Leased Equipment - If the organization is leasing equipment, it must determine whether the lease
is a capital lease or an operating lease. Equipment acquired under a capital lease must be accounted for like an
installment purchase, while payments on an operating lease are charged to expense as they are incurred.
Any lease that meets any one of the following criteria is a capital lease:
(1) Title transfers automatically at the end of the lease term,
(2) there is a bargain purchase option,
(3) the lease term is 75% or more of the equipment's useful life, or
(4) the net present value of all lease payments is 90% or more of the current market value of the equipment.
1302.06
Leasehold Improv ements - O ccasionally an organization will find it more practical or less expensive
to lease a building or a part of a building on a contract extending over a period of years, rather than to purchase or
construct a building. Such premises usually are not configured exactly as the entity needs, so it is common to invest
in improvements or alterations to adapt the property to its needs. In most cases, the lease agreement provides that
any such improvements will transfer to the owner of the property at the termination of the lease period.
Expenditures of this kind, called leasehold improvements, represent the purchase of a long-lived asset, and should
be depreciated like other buildings and improvements. If the cost is minor or insignificant, there is an exception that
allows it to be charged to expense when incurred. H owever, if the amount involved is significant, and an immediate
write-off would distort the operating results of the year in which the expenditure is made, the depreciation process
should be followed. There is no salvage value, because when the lease expires, the lessee has no further property
rights in the improvements. Therefore, the total amount of the investment would be subject to depreciation.
Two time elements must be kept in mind in computing the deprecation: the period of the lease, and the expected
actual life of the improvements. The asset value must be depreciated over the shorter of these two time periods. For
example, if a building is leased for ten years, and improvements are added which have a normal life of twenty years,
the improvements will be depreciated over ten years - the term of the lease. Conversely, if the lease runs twenty
years, and the improvements are expected to last for only ten years, the improvements should be depreciated over
the period of their expected life, ten years, not over the twenty-year lease term.
1302.07
Donated Assets - Any land, buildings, or equipment donated to the organization are recorded in
appropriate accounts at their fair market value at the date of acquisition, and are depreciated in the same manner as
assets acquired by purchase. This includes the fair value of labor donated to construct plant assets. The entry for
donated assets is to debit the appropriate asset account and credit a non-cash contribution revenue account. This
account will appear in the capital activity or non-operating activity section of the statement of financial activity. The
revenue account used will be identified as either restricted or unrestricted, depending on whether or not the donor
specified any restriction on the purpose or use of the donated asset.
1302.08
M inimum Cost Policy - Administrators frequently wonder how small an equipment purchase should
be in order to avoid the effort involved to capitalize and depreciate it. Each organization should have a written policy
indicating the minimum cost and the minimum expected life of an item to qualify it for capitalization in the equipment
asset account. For example, such a policy could stipulate a minimum life of three years and a minimum cost of 500.
Any item with a shorter life or a lower cost would be charged to expense when acquired.
1302.09
Authoriz ation For Acquisitions - G CW P S 15 15 requires each Division to establish policies for the
approval of acquisitions of land and buildings, with appropriate thresholds for local, union, and division approval.
Administrators should apply these policies when acquiring any major asset. Also, the reporting entitys own governing
committee should approve such acquisitions, using one or more of the following processes :
(a) Funds may be set aside for the acquisition and/or replacement of long-lived assets in general. Provision is
made so that funds will be available if and when the need arises for any type of asset. This is often provided
in the annual operating budget which is approved by the governing committee. W here this procedure is
followed, the committee should also authorize specific purchases out of this fund, since the initial approval
was merely to set funds aside for capital purchases and not for the purchase of specific assets.
(b) Funds may be set aside for the acquisition and/or replacement of specific long-lived assets. In such a case
the governing committee is approving the setting aside of funds, and at the same time is authorizing the
acquisition and/or replacement of the specific long-lived assets.
(c) The governing committee can authorize the CFO to approve the purchase of any equipment asset costing
up to a certain amount without reference to the committee. This is a pragmatic approach to ensure that
operations are not hindered while waiting for committee authorization, and not to burden committees with
relatively insignificant business. For example, if the minimum capitalization amount is 500, the CFO may be
authorized to approve purchases of up to 1,500 or 2,000.
Section 1303 - Depreciation Principles and Policies
1303.01
Nature of Depreciation - Accounting principles require expenses and costs to be matched with
revenues of each accounting period. Because land improvements, buildings, and equipment benefit a number of
periods, accounting principles require the respective cost to be recognized by using depreciation. Depreciation
methods calculate a pro-rata share of the cost of each asset, based on the estimated useful life of the asset, and apply
such pro-rata costs to each accounting period in a systematic manner. G enerally, the denomination prefers to use
the straight-line depreciation method, but other methods may be applicable in unique situations.
1303.02
Distrib ution of Ex pense - W hether an organization uses fund accounting or not, if it is required to
report activity by department or function, then depreciation expense should be distributed among the departments or
functions that use the underlying assets. For equipment and furnishings, this distribution is typically calculated in the
subsidiary ledger by arranging the assets according to department or function. For land improvements and buildings,
the distribution is typically calculated from the general ledger accounts using supporting schedules that distribute
buildings or floor space according to the departments that use them. W hen depreciation is posted to the control
accounts, the appropriate portions are recorded in expense accounts for each affected department or function.
1303.03
Accumulated Depreciation - Each depreciable asset control account (land improvements, buildings,
equipment and furnishings, etc.) will have a valuation account related to it for accumulated depreciation. These
valuation accounts will contain the accumulated depreciation expense that has been taken to date on the assets in
each respective category.
1303.04
Ex pense v s. Funding - It is important to distinguish between two terms that can be confused.
(1) Depreciation Ex pense is the systematic recognition in each accounting period of the pro-rata share of the cost
of land improvements, buildings, and equipment over their useful lives. As an expense, this results in a decrease to
the net assets of the organization as a whole. Recognition of depreciation expense is required for all organizations.
(2) Depreciation Funding is a denominational policy that encourages organizations to set aside cash and/or
investments to be used in future periods for acquisition or replacement of plant assets. This Manual requires all
entities to establish an allocated net asset account equal to the resources, if any, that have been set aside for
depreciation funding. As an allocation or transfer, this results in only a reclassification, not a decrease, to the net
assets of the organization as a whole. The purpose of setting cash aside is to have resources available when
necessary to acquire plant assets. The purpose of using an allocated net asset account is to help the entity monitor
the use of the resources and minimize the risk that they may be used for unintended purposes.
G enerally, the goal is to allocate or fund an amount equal to the annual depreciation expense. In practice, the
amounts vary, depending on budgetary decisions of each organization's governing committee. These allocations of
resources represent reclassifications from unrestricted unallocated or allocated operating net assets into unrestricted
allocated plant net assets. As explained in Chapter 6 and illustrated in Appendices 13C and 13D, for entities that use
fund accounting, these allocations also involve transfers from one or more funds into the plant fund. They may also
involve payment of rent from conferences to conference corporations, which then transfer funding to plant funds.
All movements of resources for depreciation funding should be recorded as transfers between funds, and never as
revenue and expense.
1303.05
Depreciation R ates - The recording of depreciation on long lived assets is described as the
systematic, rational allocation of the cost of the asset over its estimated useful life. The following rates on building,
furnishings, and equipment are published primarily as guidelines; in unique circumstances rates somewhat different
may be appropriate. These guidelines provide a range of possible life rates. O rganizations should analyze the
characteristics of each asset, and select an appropriate rate.
Buildings
Life
W ell-constructed brick, stone, or reinforced cement buildings . . . . . . . . . . . . . . . 75 yrs
Brick veneer or thin-wall cement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 yrs
Frame stucco buildings on good foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 yrs
All other buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 - 30 yrs
Furnishings and Equipment
Durable office furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 - 20 yrs
Light office furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 - 15 yrs
Durable heavy institutional furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 - 20 yrs
Light school and institutional furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 12 yrs
Carpets, rugs, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 10 yrs
O ffice Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 10 yrs
Dormitory Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 10 yrs
Engines & Boilers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 20 yrs
Desktop & Laptop/Notebook Computer Systems . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 5 yrs
Large Central Computer Systems & File Servers . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 7 yrs
Audio-V isual Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 5 yrs
1303.06
Rate
1 1/3%
2%
2 1/2%
3 - 5%
5 - 10%
7 - 10%
5 - 7%
8 - 12%
10 - 20%
10 - 20%
10 - 20%
5 - 20%
20 - 33%
14 - 20%
20 - 33%
Fractional Y ears - Each entity should have a policy about how much depreciation to take in the year
an asset is acquired. For example, if an asset is purchased on November 1, is depreciation recorded for half a year,
for two months, or not at all in the year of acquisition? Accounting standards allow depreciation for either a portion
of a year or not at all in the year of acquisition, as long as the practice chosen is applied consistently to all assets in
a similar class or category. Many organizations charge depreciation from the beginning of the month of acquisition.
O thers charge a full year for all assets acquired during the first half, and nothing for assets purchased during the
second half of the year. The same question arises upon the disposition of assets. Is depreciation recorded up to the
exact date of disposition, or up to the first of that month, or not at all in the year in which the asset is disposed of? As
long as the practice chosen is applied uniformly, either method is allowed.
1303.07
Annual and M onthly Depreciation - The discussion so far has focused on the amount of
depreciation for a fiscal year. In actual practice, depreciation should be recorded each month for all depreciable
assets. H owever, the amounts recorded for the first eleven months can be an estimate.
At the beginning of the year, the estimated amount is determined for the whole year, and then one-twelfth of that
is recorded each of the first eleven months of the year. Then, during the last month of the year, the exact amount is
calculated for the entire year, including fractional years depreciation on items purchased during the year, in
accordance with the predetermined policy on this point, and correcting the annual depreciation on those items which
may have been disposed of during the year. From this exact total of depreciation for the entire year, deduct the
amount that has been recorded for the first eleven months, to arrive at the amount to be recorded for the last month
of the year. In this way, the total of the twelve monthly entries will agree exactly with the adjusted amounts recorded
in the individual accounts in the subsidiary ledger or detail schedule.
Section 1304 - Other Plant Asset Accounting Principles
1304.01
Sub sidiary R ecords - Each of the major asset accounts (land, land improvements, buildings, and
equipment) and their related accumulated depreciation accounts represent control accounts in the general ledger.
The individual assets in each of these categories should be carried as separate accounts in a subsidiary ledger. The
individual subsidiary records should agree at all times with the parent accounts in the general ledger, for both original
cost and accumulated depreciation. If the entity has only a few accounts related to land improvements and buildings,
these may be kept in separate general ledger accounts rather than in a subsidiary.
Each individual asset record should include:
the name, serial number if applicable, and asset inventory number,

an adequate description of the purpose and location of the asset,
sufficient other detail to distinguish that particular item from other similar items,
total cost, source document, and date reflecting the original purchase,
estimated useful life and annual depreciation rate (in either percentage or years), and
carrying value at the beginning and end of each year, and amount of depreciation recorded each year.
1304.02
Liab ilities for Plant Assets - In many cases, purchases of equipment will be made without immediate
cash payment; that is, an account payable will be charged. It follows that the liabilities representing such accounts
will be grouped with the plant-related liability accounts, rather than with operating accounts. W hen property is
purchased on a long-term loan or contract, the principal amount of the liability is carried in the plant liability group. The
total cost of the property acquired is recorded in the Land and Buildings accounts; the loan is recorded by crediting
a loan payable account; and only the difference is recorded as an addition to net assets invested in plant.
For organizations that use fund accounting, this may involve multiple sub-funds (see Section 1306.01), as follows.
(a) Receipt of funds from the lending organization will be recorded in the Unexpended Plant Fund, with a debit
to cash and a credit to proceeds from borrowing.
(b) W hen the asset is purchased, the usual entries for the purchase of an asset will be made in both funds (See
Appendix 13C). There will be a debit to assets, a credit to a liability, and the net difference as a credit to
assets acquired (an increase to the Invested in Plant Fund).
(c) As the long-term liability is repaid, the payments (principal and interest) will be recorded in the Unexpended
Plant Fund, and at the same time the liability (principal) must be reduced in the Invested in Plant Fund. The
cost of the asset will have been capitalized under Step (b) above. During the life of the loan an offsetting
liability is also reflected in the Invested in Plant Fund. As the note is repaid (out of available funds in the
Unexpended Plant Fund) the liability is reduced and net assets of the Invested in Plant Fund are increased.
Any interest paid is recorded as expense in the Plant Fund; it is not considered part of the asset cost.
1304.03
Net Asset Components - As discussed further in Chapter 15, resources may be designated by the
governing committee at various times for various capital functions. Allocated capital functions accounts will be used
to separate these accounts from unallocated functions and operating allocated functions.
1304.04
Accountab ility for Ex istence of Assets - Because land, buildings, and equipment represent
important and valuable assets of the organization, the actual physical presence of such assets, especially equipment
and furnishings, should be compared periodically with the accounting records. In other words, there should be a
physical count of these items at reasonable intervals. This Manual recommends that such a reconciliation be
completed at least every three years. This can be accomplished by a complete count every third year or by counting
one-third of the total record each year.
Section 1305 - Disposition of Capital Assets
1305.01
Scope of the Section - O ften an asset is not retained in use until the end of its expected life, or until
it becomes completely unusable. Articles are sold, traded in on new items, lost or abandoned, or must be discarded
because they cannot be used any longer. It is necessary to record such events and remove the asset from the
records. The following discussion applies to equipment, but the same principles apply to the disposition of other
depreciable assets.
1305.02
Authoriz ation - If the item is a minor one, its disposition may be authorized by an individual; usually
the CFO has this responsibility. W here the transaction is complicated, as in the disposition of a major asset such as
land and one or more buildings, or where the amounts involved are considerable, an appropriate committee should
authorize the transaction, with the details made a matter of record. In either case, the accountant should be instructed
in writing as to the action to be taken, and this written authorization should be filed with the accounting voucher. The
basic accounting is to debit cash and credit revenue for any proceeds of sale, debit accumulated depreciation, credit
the asset account, and debit cost of assets sold for any net depreciated book value.
1305.03
Accounting for Equipment T raded-ins - W hen a disposition involves a trade-in of an existing asset
for a newer similar asset, the accounting is more complex. The organization must determine the fair market value of
the new equipment, because that is the amount at which the new asset must be recorded. This is not necessarily the
same as the stated or published price as if it were all paid in cash. The fair market value of the new asset equals the
sum of the cash amount actually paid plus the amount of trade-in value allowed or given for the old asset. (Sometimes
only two of these three elements are given; but if we know any two of them, the third can be calculated.) In many
cases, the trade-in value allowed by the seller of the new asset is different from the net depreciated value of the old
asset. G AAP requires this difference to be recorded as a gain or loss at the date of the trade-in transaction.
Section 1306 - Fund Accounting for a Plant Fund
1306.01
Numb er of Funds - For those entities that use fund accounting, this Manual offers two alternatives,
depending on the degree of detail the entitys governing committee desires. Sample accounting entries for each
alternative are presented in Appendices 13B, 13C, and 13D.
For most entities that use fund accounting, this Manual envisions the use of a single undivided plant fund, although
as discussed later, it will have at least two separate net asset accounts. This undivided single plant fund is illustrated
in the sample union conference financial statements in Appendix 17A. The illustrated financial statements in Appendix
17A are also used as a reference in some of the discussion in the following paragraphs.
For organizations that have allocated significant resources for multiple future projects or have received restricted
donations for multiple future projects, this Manual offers the choice of either an undivided plant fund or a plant fund
that is divided further into an unexpended plant fund and an invested in plant fund. Entities that have borrowed longterm debt for the acquisition of plant assets and have a specific plan to accumulate funds for repayment of the debt
may also use a third sub-fund for retirement of indebtedness. These two (or three) sub-funds comprise one plant fund,
but each sub-fund's assets, liabilities, and net assets are separately identified and self-balancing.
1306.02
U nex pended Plant - Every entity will have a group of accounts identified as unexpended plant. If
the entity does not use fund accounting, or if the entity uses a single undivided plant fund, this group of accounts will
be associated with a function or component of net assets, but will not represent a separate self-balancing fund. If the
entity uses a multiple-sub-fund plant fund, this group of accounts will represent a separate self-balancing sub-fund.
In either case, the purpose for the unexpended plant group of accounts is the same. This group of accounts is used
to record resources that are available for future use in acquiring land, buildings, and equipment.
The unexpended plant resources typically consist of cash, investments, amounts due from other funds of the
entity, and occasionally, accounts receivable. All of these assets are reported as noncurrent assets in the entitys
statement of financial position. The unexpended plant group of accounts may occasionally include a liability for an
account payable on an asset purchased on open account, or amounts due to other funds of the entity. These liabilities
are reported as noncurrent in the entitys statement of financial position.
Increases to unexpended plant resources consist of transfers of committee-allocated operating resources for
unexpended plant purposes, receipt of donations that are restricted by the donor to unexpended plant purposes,
investment income on unexpended plant cash and investments, proceeds from sale of plant assets, and exchange
gains on appropriations from other denominational entities. Decreases to unexpended plant resources consist of
disbursements to acquire plant assets, payments on plant-related long-term liabilities, and exchange losses on
appropriations from other denominational entities.
Repairs and maintenance of buildings and equipment are usually classified as operating expenses, and are
reported as expense in the operating fund statement of financial activity in the period incurred. H owever, under certain
conditions, major repairs and renovations may be capitalized as depreciable plant assets. See Appendix 13E for a
guide on how to determine whether to capitalize a major repair expenditure.
The unexpended plant net asset balance can consist of unallocated amounts (resources that are available for the
acquisition of plant assets in general) and allocated or restricted amounts (resources that have been set aside by
committee action or have been received from donors for the purchase of specific capital assets). Appendix 17A.03
illustrates this grouping of accounts within the unexpended plant function.
1306.03
Inv ested in Plant - Every entity will have a group of accounts identified as invested in plant. If the
entity does not use fund accounting, or if the entity uses a single undivided plant fund, this group of accounts will be
associated with a function or component of net assets, but will not represent a separate self-balancing fund. If the
entity uses a multiple-sub-fund plant fund, this group of accounts will represent a separate self-balancing sub-fund.
In either case, the purpose for the invested in plant group of accounts is the same. This group of accounts is used
to record the cost and accumulated depreciation of land, land improvements, buildings, and equipment, as well as any
long-term liabilities related to those assets. These assets are reported on a separate line of the statement of financial
position, between current assets and other assets. Any liabilities in this group of accounts will be reported in the
section of the statement of financial position that contains noncurrent liabilities.
Increases to the net amount invested in plant come from the acquisition of new plant assets and from the
liquidation of plant-related debt. Decreases to the net amount invested in plant come from depreciation expense and
from sales or disposals of existing plant assets. The net amount invested in plant would also be decreased if new
loans were obtained, using existing plant assets as collateral, but not acquiring any new plant assets.
1306.04
Statement of Financial Position - The assets, liabilities, and net assets of the plant fund are reported
in a separate column in the statement of financial position. The total of cash, investments, and other assets held for
unexpended plant purposes are reported on a separate line in the other assets group. This total, minus any short-term
liabilities, will equal the net asset balance identified as unexpended plant. The total net depreciated value of land, land
improvements, buildings, and equipment is reported on another line. A note to the financial statements presents
summarized details of this total (see Note 8 in Appendix 17A.05). This total, minus any plant-related long-term
liabilities, will equal the net asset balance identified as invested in plant.
Although a portion of any plant-related
liabilities will normally be due within the next operating period, it is related to plant asset activity, not operating activity,
and so it is not divided between current and long-term portions on the face of the statement of financial position.
1306.05
Statement of Financial Activ ity - Financial activity of the plant fund is reported by object in a plant
fund column in the statement of financial activity. Total depreciation expense for the period is reported on a line in the
operating expense section, because it is considered to be a normal and required element of routine operations.
Transfers between operating and plant funds are reported in the last section of the statement, before net increase or
decrease for the year. All other plant-related activity is reported in a capital activity section. (See Appendix 17A.02)
Capital activity would typically include appropriations received for plant-related purposes, appropriations disbursed for
plant-related purposes, investment income on unexpended plant resources, donations received for plant-related
purposes, realized and unrealized gains and losses on unexpended plant investments, gains and losses on sale or
disposal of plant assets, and exchange gains and losses on appropriations. As with the rest of the statement of
financial activity, the plant fund column concludes with the increase or decrease for the year and then the ending
balance of net assets in the entire plant fund.
1306.06
Statement of Changes in Net Assets - The statement of changes in net assets presents a summary
of income, expense, transfers, and beginning and ending balances in columns, with amounts for those items on
separate lines for each function or designated purpose within the unexpended and invested in plant functions. At a
minimum, there will be at least one line for unexpended plant (if depreciation has been funded or there are unspent
donations restricted for plant acquisition) and one line for invested in plant. Most organizations typically will have two
or more specific functions within the unexpended group. The statement concludes with totals of this information for
the operating fund, the plant fund, and the whole entity. (See Appendix 17A.03)
Appropriations and donations for plant purposes, and investment income, will be reported in the income column
and on the lines for unexpended plant functions. Depreciation expense will be reported in the expense column and
on the line for invested in plant function. Resources allocated from the operating fund will be reported in the transfers
column and on a line in the unexpended plant function. Disbursements to acquire plant assets will be reported as
transfers out of the respective unexpended plant functions and transfers in to the invested in plant function.
1306.07
T ransfers - As discussed earlier, the flow of allocated resources from the operating fund to the plant
fund is classified as transfers, not as revenue or expense. In addition, because these transactions reflect movement
of resources within the organization, not inflows or outflows with third parties, they do not increase or decrease the
total resources held by the organization as a whole. Each fund reflects its own net asset balance, which is changed
by such transfers, but the combined balances of all the funds remain the whole entitys net asset balance. O bviously
then, the total transfers out of one fund must b e equal to the total transfers into the other fund. As a result,
the final total of transfers for the whole entity will be reported as zero; on the transfers line in the statement of financial
activity and in the transfers column in the statement of changes in net assets. If a trial balance for the entity reveals
transfer totals that do not equal, it means an error has been made, which should be investigated and resolved before
preparing the financial statements.
1306.08
Balances and Activ ity b y Asset Class - To comply with G AAP, the notes to the financial statements
must include a note with supporting detail for the plant-related balances and activity reported on the face of the
financial statements. This note will report summarized totals for cost, accumulated depreciation, net value, current
period depreciation expense, current period additions, and current period deletions for each major class of plant
assets. The supporting detail for these summarized amounts will be found in the plant asset subsidiary ledger (or in
specific general ledger accounts if a subsidiary is not used). (See illustrated Note 8 in Appendix 17A.05.)
Appendix 13A - Legal Considerations

13A.01 Property Law s - There are strong legal connotations to the acquisition of, holding title to, and accounting
for land and buildings. There are few universally applicable rules and regulations - every country has its own legal
statutes governing these matters. Therefore, the administrators of every entity should be familiar with the pertinent
laws and regulations of the countries in which land is held by or for the organization. This is vital to ensure compliance
with local laws and to safeguard denominational investment in land and buildings. Compliance with generally accepted
accounting principles will usually conform to most legal frameworks regarding land and buildings. H owever, this
Manual recognizes there are instances in which laws may dictate particular accounting and reporting practices.
13A.02 T itle to R eal Property - To protect denominational assets, several procedures should be followed.
W here applicable, a title search must be performed by an attorney or other appropriate professional to ensure that
the purchasing entity obtains clear title to the acquired property.
Under no circumstances should the purchase price be paid to the seller or sellers representative before the
property has been registered in the new owners name. The safest procedure is to deposit the purchase price,
in trust, with the entitys own attorney, or with a reputable professional title-transferring entity, pending registration.
W henever land, land improvements, and buildings are acquired, the title deed must be recorded promptly in the
name of the respective denominational association, corporation, or similar legal entity.
The title documents should be filed in secure, fireproof storage. Access to such documents should be available
only to responsible financial or administrative personnel. A record should be kept of every occasion on which they
are withdrawn from the file, with the date, name of individual handling the document, and reason for withdrawal.
If the entity that accounts for the cost and accumulated depreciation for a particular property is different from, or
located in a different area than, the entity that holds legal title to the property, the entity that accounts for the
property should retain a copy of the title deed (either a photocopy, facsimile, or electronic image).
13A.03 W hose Financial Statements Should Include the Assets? -International G AAP includes the following
principles regarding the accounting for land, buildings, and equipment. The accounting standards quoted below have
been recently revised, with an effective date of 1 J anuary 2005.
IAS 16.7 - The cost of an item of property, plant, and equipment shall be recognised as an asset if, and only if:
(a) it is probable that future economic benefits associated with the item will flow to the entity; and
(b) the cost of the item can be measured reliably.
IAS Framework, paragraph 57 - Many assets, for example, receivables and property, are associated with legal
rights, including the right of ownership. In determining the existence of an asset, the right of ownership is not
essential; thus, for example, property held on a lease is an asset if the entity controls the benefits which are
expected to flow from the property. Although the capacity of an entity to control benefits is usually the result of
legal rights, an item may nonetheless satisfy the definition of an asset even when there is no legal control.
Because the accounting is dependent on the relationship between organizations, it is not practical for this Manual
to develop one universal rule about which entity should account for land and buildings. Part of the challenge
(especially for properties other than local churches and elementary schools) is that historically the denomination has
allowed one entity to hold legal title while another entity uses and accounts for the property, but rarely have entities
placed that understanding into a written document. Also, when one entity is determined to be the one that should
include property in its financial statements, while another entity uses that property, the two entities may be so closely
affiliated that their respective financial statements will be required to be combined or consolidated for general-use
financial presentation. Section 13A.09 contains this Manuals interpretations for the most common denominational
property relationships.
13A.04 Application to Lease Agreements - International G AAP includes the following guidance for land and
buildings that are titled in the name of one entity but are used by another entity under terms of a written agreement.
IAS 17.8 - A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental
to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and
rewards incidental to ownership.
IAS 17.20 & 17.33 - Lessees shall recognise finance leases as assets and liabilities at amounts equal to the fair
value of the leased property or, if lower, the present value of the minimum lease payments. Lease payments
under an operating lease shall be recognised as an expense on a straight-line basis over the lease term unless
another systematic basis is more representative of the time pattern of the users benefit.
IAS 17.14 - Leases of land and of buildings are classified as operating or finance leases in the same way as
leases of other assets. H owever, a characteristic of land is that it normally has an indefinite economic life and,
if title is not expected to pass to the lessee by the end of the lease term, the lessee normally does not receive
substantially all of the risks and rewards incidental to ownership, in which case the lease of land will be an
operating lease.
IAS 17.15 - The land and buildings elements of a lease of land and buildings are considered separately for the
purpose of lease classification. If title to both elements is expected to pass to the lessee by the end of the lease
term, both elements are classified as a finance lease, unless it is clear from other features that the lease does not
transfer substantially all risks and rewards incidental to ownership of one or both elements. W hen the land has
an indefinite economic life, the land element is normally classified as an operating lease unless title is expected
to pass to the lessee by the end of the lease term, in accordance with paragraph 17.14. The buildings element
is classified as a finance or operating lease in accordance with paragraph 17.8.
13A.05 Denominational Policy - G e ne ral C onfe re nce W ork ing P olicy S 55 (S 60 prior to 2008), H olding
Properties, includes the following provisions:
S 55 05
Property Ow nership - Church properties and other assets shall be held in the name of an
appropriate denominational corporate entity, not by individuals, trustees, or local congregations. W here this is not
legally possible, divisions shall make alternative arrangements in consultation with the G eneral Conference O ffice
of G eneral Counsel.
S 55 10
Property V aluations - All church properties and other properties owned by conference associations
that are not used for association operating purposes shall be listed in the association books of account at their
cost, and a reserve shall be set up leaving US$ 1 (or the equivalent) net valuation on each property as listed; this
policy to apply in overseas fields as conditions and legal requirements may permit.
S 55 15
Special Prov isions - In situations where it is not possible or feasible to register a property-holding
organization in a country or where the expense of transferring properties would be prohibitive, properties may
continue to be titled in the name of the G eneral Conference Corporation of Seventh-day Adventists or other
existing corporations. H owever, where possible the assets shall be recorded in the books of the division or the
subsidiary organization in whose territory the property is located.
13A.06 Legal Entities - The policy quoted above refers to corporations and associations. These are terms
representing some form of legal entity: local legal requirements must determine what form the organization will take.
W here a Division, Union Conference or Mission, or Local Conference, Mission, or Field comprises more than one
country, it may be required to register a legal entity in each of the component countries, to hold title to property. As
a result, it may be that to comply with laws and regulations the land, and possibly buildings, that are used by one entity
will be re gis te re d in the name of another denominational legal entity. In any case, w h e re v e r p os s ib le , all land and
buildings should be included in the financial statements of the entity that has the right to use them. In this way, the
reporting entitys financial statements will reveal its total financial standing. In such a situation, the reporting entitys
financial statements must include an explanatory note that the other entity holds legal title to the property.
13A.07 Agreements Betw een Affiliated Entities - Since G AAP focuses on which entity is expected to realize
economic benefit from the use of property (rather than simply observing which entity holds legal title), any agreement
between the legal title holder and the user of the property is critically important. Agreements between entities are less
susceptible to misinterpretation and conflict if they are in writing. This Manual strongly recommends that every entity
that holds legal title to land, and related buildings, that are used by affiliated entities prepare some form of written
document to describe the terms of the relationship between them. As a starting point, and only a guide, Appendix 13F
offers two examples of some of the terms that could be considered for such documents. W h e ne v e r a w ritte n
agre e m e nt is p re p are d , it s h ould alw ay s b e p re p are d or at le as t re v ie w e d b y le gal couns e l, to e ns ure th at it com p lie s
w ith ap p licab le law s and re gulations and e x p re s s e s th e true inte nt of th e p artie s .
13A.08 Properties U sed By Local Congregations - These properties are unique because they are paid for and
operated by local congregations. Because accounting and reporting at the local congregation level reflects only
operating activities, it is imperative that organizations follow G CW P S 60 10 as quoted earlier. Because the use of
these local properties is under the direction and control of a local conference, mission, or field, this Manual considers
G CW P S 60 10 to be an appropriate application of IAS 16.7 (outside the USA) for these kinds of properties.
This preserves a record of the original cost of the property and at the same time, by carrying a nearly equal amount
in a contra account, does not inflate the total asset value of the reporting entity. In its responsibility for the sisterhood
of churches, the reporting entity is, in a sense, holding these properties for use by the local congregations. It must
be emphasized that this special depreciation or contra account is limited to properties used by local congregations.
Properties used directly for the operating activities of the reporting entity (office buildings, youth camps, housing for
employees, etc.) must be depreciated in the normal way as described in Section 1303.
13A.09 G uidance for V arious Situations - T he follow ing illustrations are b ased on the assumption that no
law s or regulations dictate a different accounting or reporting procedure for the territory in w hich the property
is located. If there are legal requirements that differ from International G AAP, then they must b e follow ed.
1. Land and Buildings Used by Local Church Congregation or Elementary (Primary) School
a. Legal Title H eld in Name of Local Conference/Mission/Field
i.
Local Church or School financial statements. Include only operating activity: do not include cost or
accumulated depreciation of land, land improvements, and buildings. Include explanatory note that the
affiliated conference, mission, or field is the owner of the property that is used by the local entity.
ii.
Local Conference/Mission/Field financial statements. Include total cost of land, land improvements, and
buildings used by local churches and schools. O utside the USA, include accumulated depreciation
(contra account) in an amount such that the net carrying amount of the properties are just one currency
unit for each property. In the USA, include accumulated depreciation corresponding to the expired portion
of the assets estimated useful life.
b. Legal Title H eld in Name of Union Conference/Mission or Division

i.
Local Church or School financial statements. Include only operating activity: do not include cost or
accumulated depreciation of land, land improvements, and buildings. Include explanatory note that the
respective union conference/mission, or division, holds title to the property that is used by the local entity.
ii.
Local Conference/Mission/Field financial statements. Do not include cost or accumulated depreciation

of properties that are used by local churches and schools. Include explanatory note that the respective
union conference/mission, or division, holds title to the property that is used by the local entities.
iii. Union Conference/Mission or Division financial statements. Include total cost of land, land improvements,
and buildings used by local churches and schools. Include accumulated depreciation in an amount such
that the net carrying amount of the properties are just one currency unit for each property. Include
explanatory note that entity holds title to these properties only to satisfy national legal requirements.
2. Land and Buildings Used by Local Conference/Mission/Field for O ffice, Youth Camp, or O ther Ministries
a. Legal Title H eld in Name of Affiliated Local Conference-level Legal Entity
i.
Local Conference/Mission/Field financial statements. Do not include land, land improvements, and
buildings in the single-fund financial statements of the operating entity. Include the cost and accumulated
depreciation of land, land improvements, and buildings in the separate financial statements of the legal
title-holding entity. Combine or consolidate the financial statements of both entities, so that generalpurpose financial statements of the entity as a whole will include the properties they use.

i.
Local Conference/Mission/Field financial statements. Include the cost and accumulated depreciation of
land improvements and buildings. In addition, include an explanatory note that the respective union
conference or mission, or division, holds legal title to the land, land improvements, and buildings that are
used by the entity. [If there is a written use agreement between the parties, the explanatory note refers
only to land. The statements identify land improvements and buildings as leasehold improvements.]
ii.
Union Conference/Mission or Division financial statements. Include total cost of land that is used by local
conferences/missions/fields. Do not include cost or accumulated depreciation of land improvements and
buildings that are used by local conferences/missions/fields. Include explanatory note that the union
conference/mission or division holds title to these properties only to satisfy national legal requirements.
3. Land and Buildings Used by Academy (Secondary School)

a. Legal Title H eld in Name of School
i.
Academy financial statements.

improvements, and buildings.
Include the cost and accumulated depreciation of land, land
b. Legal Title H eld in Name of Local Conference/Mission/Field
c.
i.
Academy financial statements. Include the cost and accumulated depreciation of land improvements and
buildings. In addition, include an explanatory note that the respective local conference/mission/field holds
legal title to the land, land improvements, and buildings that are used by the entity. [If there is a written
lease or similar agreement between the parties, the explanatory note refers only to land. Then the
financial statements identify the land improvements and buildings as leasehold improvements.]
ii.
Local Conference/Mission/Field financial statements. Include total cost of land that is used by academies.
Do not include cost or accumulated depreciation of land improvements and buildings that are used by
academies. Include explanatory note that the local conference/mission/field holds title to these properties
only to satisfy national legal requirements.
Legal Title H eld in Name of Union Conference/Mission or Division

i.
Academy financial statements. Include the cost and accumulated depreciation of land improvements and
buildings. In addition, include an explanatory note that the respective union conference/mission or division
holds legal title to the land, land improvements, and buildings that are used by the entity. [If there is a
written lease or similar agreement between the parties, the explanatory note refers only to land. The
statements identify the land improvements and buildings as leasehold improvements.]
ii.
Union Conference/Mission or Division financial statements. Include total cost of land that is used by
academies. Do not include cost or accumulated depreciation of land improvements and buildings that
are used by academies. Include explanatory note that the union conference/mission or division holds title
to these properties only to satisfy national legal requirements.
4. Land and Buildings Used by College, University, Publishing H ouse, Food Factory, or H ealth Care Facility
a. Legal Title H eld in Name of Reporting Entity
i.
Reporting Entity financial statements. Include the cost and accumulated depreciation of land, land
improvements, and buildings.
c.
i.
Reporting Entity financial statements. Include the cost and accumulated depreciation of land
improvements and buildings. In addition, include an explanatory note that the respective union
conference/mission or division holds legal title to the land, land improvements, and buildings that are used
by the entity. [If there is a written lease or similar agreement between the parties, and the reporting entity
paid for the land improvements and/or buildings, the explanatory note will refer only to land. Then the
financial statements will identify the land improvements and buildings as leasehold improvements.]
ii.
Union Conference/Mission or Division financial statements. Include total cost of land that is used by other
reporting entities. Do not include cost or accumulated depreciation of land improvements and buildings
that are used by the other reporting entities. Include explanatory note that the union conference/mission
or division holds title to these properties only to satisfy national legal requirements.
Exception W hen It Is Not Probable That The Reporting Entity W ill Receive Future Economic Benefit
i.
Reporting Entity financial statements. Do not include land, land improvements, or buildings. Include
explanatory note that other entity holds title to land, land improvements, and buildings that are used by
the reporting entity. As part of that note, disclose uncertainty about whether the reporting entity will
receive economic benefit from use of the property in the future. [Such uncertainty may result, for
example, if there is no written agreement between the parties and there is disagreement about the terms
of the relationship between them, or when the title-holding entity has plans to sell or otherwise develop
the property, to the exclusion of the reporting entity.]
ii.
Title-holding Entity financial statements. Include the cost and accumulated depreciation of land, land
improvements, and buildings. Include note that describes present use of the property as well as any plans
for different future use of the property.
13A.10 Concerns Ab out Ascending Liab ility - In some countries, there is concern that following G AAP and
including the balances related to plant assets in the financial statements of certain types of entities exposes those
assets to potential risk of loss in the event of claims for liability damages. In some Divisions and Unions, there is a
desire to establish corporations or similar legal entities to hold legal title to land and buildings, apart from the entities
that actually use that property. In response to the potential liability risk, and based on study and legal counsel, the
governing committee of a Division or a Union may decide to report the balances related to such property in the
financial statements of the title-holding entity rather than in the financial statements of the entity that uses the property.
It is recogniz ed that this form of reporting w ould b e a departure from International G AAP, and auditors w ould
b e required to determine w hether to modify their opinions on the respectiv e financial statements.
13A.11 Additional Legal Concept in U SA - USA G AAP requires the cost and accumulated depreciation for real
property to be included in the financial statements of the organization that owns it. To determine who the owner is
depends on review of documentary evidence. A written agreement between an entity that holds title to property and
an entity that uses that property can stipulate who the owner is. For example, many conferences and academies have
prepared written agreements which state that the user of the property is the owner of any buildings constructed and
paid for by the user. If there is no written agreement stating otherwise, then buildings and land improvements are
considered to be owned by the legal title holder of the land upon which they are located.
NADW P P 15 80 directs this Manual to offer an alternative to the above principle for land (and related buildings)
that is titled in the name of one entity but is used by a related entity. Under this alternative, properties used by
churches and elementary schools would be listed only in notes to (not on the face of) the association financial
statements, and properties used by academies would be included in the academy (not the association) financial
statements.
It is recogniz ed that this alternativ e presentation is a departure from generally accepted
accounting principles, and auditors w ill b e required to determine w hether to modify their opinions on the
respectiv e financial statements.
Appendix 13B - Accounting Entries Illustrated - Single Fund M odel

13B.01 Introduction - The following paragraphs illustrate some common plant asset accounting entries. These
illustrations apply to all organizations that do not use fund accounting.
13B.02 Acquisition of Assets
(1) Assume purchase of land and house for employee housing; total price of 100,000, of which 30,000 is paid
in cash from unallocated resources, and the remainder is financed with a long-term note and trust deed.
The total cost is divided 20,000 for the land and 80,000 for the building.
Account
Employee H ousing - Land
Employee H ousing - Buildings
Cash in Bank
Mortgage Payable - (nam e of le nd e r)
To record acquisition of house and lot, in exchange for cash
down payment and trust deed note for balance.
Debit
20,000
80,000
Credit
30,000
70,000
(2) Assume the same facts as in (1), except that the cash portion is charged to an allocated fund that was
established and funded for this kind of purchase.
Account
Cash in Bank
Allocated Function (nam e ) - Transfer To Unallocated
Unallocated Function - Transfer From Allocated
To record acquisition of house and lot, in exchange for cash
down payment and trust deed note for balance, and to charge
allocated fund for the use of resources.
Debit
20,000
80,000
Credit
30,000
70,000
30,000
30,000
(3) Assume the purchase of three office desks at a price of 2,400, from unallocated resources.
Account
O ffice Equipment
Cash in Bank
To record purchase of three desks for cash. To be listed as
equipment inventory # xxx, yyy, and zzz.
Debit
2,400
Credit
2,400
(4) Assume the above desks were donated instead of being purchased. For donated assets a fair value must
be determined on as objective a basis as possible usually by comparison with prices available on the
open market for equivalent articles. Acceptance of such gifts must be recorded at full fair value, and the
asset thereafter should be depreciated exactly as if it had been purchased.
Account
O ffice Equipment
Miscellaneous Revenue - Donated Assets
To record donation of three desks. To be listed as equipment
inventory # xxx, yyy, and zzz.
Debit
2,400
Credit
2,400
13B.03 Construction in Progress

Assume expenditure of 150,000 in 20X 1 as progress payments to contractors on the construction of an office
building. Assume the building is completed in 20X 2, and the remaining balance on the full contract price,
275,000, is paid in 20X 2. Assume the land value is already in the accounting records.
Account, in 20X 1:
O ffice Building in Progress
Cash in Bank
To record payments to date on new office building.
Account, in 20X 2:
Cash in Bank
O ffice Building
To record completion of office building construction.
Debit
150,000
Credit
150,000
150,000
150,000
275,000
275,000
275,000
275,000
425,000
425,000
13B.04 Depreciation of Assets - Assume the following depreciation amounts for the period:
O ffice Building
9,250 Admin. O ffice Equipment
3,950
Community Service Building
7,200 Community Service Equipment
2,700
Employee H ousing Buildings
10,800 Employee H ousing Equipment
1,800
Auxiliary Buildings
4,600 Auxiliary Equipment
2,200
Total Depr. on Buildings
31,850 Total Depr. on Equipment
10,650
Depreciation Entries:
Depreciation Expense, O ffice Building
Depreciation Expense, Community Service Building
Depreciation Expense, Employee H ousing Buildings
Depreciation Expense, Auxiliary Buildings
Accumulated Depreciation, O ffice Building
Accumulated Depreciation, Community Service Buildings
Accumulated Depreciation, Employee H ousing Buildings
Accumulated Depreciation, Auxiliary Buildings
Depreciation Expense, O ffice Equipment
Depreciation Expense, Community Service Equipment
Depreciation Expense, Employee H ousing Equipment
Depreciation Expense, Auxiliary Equipment
Accumulated Depreciation, O ffice Equipment
Accumulated Depreciation, Community Service Equipment
Accumulated Depreciation, Employee H ousing Equipment
Accumulated Depreciation, Auxiliary Equipment
To record depreciation on plant assets for (m onth or y e ar).
Debit
9,250
7,200
10,800
4,600
Credit
9,250
7,200
10,800
4,600
3,950
2,700
1,800
2,200
3,950
2,700
1,800
2,200
13B.05 Disposition of Assets

(1) Assume the sale of a desk and chair for 200 cash. Assume cost of the two items was 875; accumulated
depreciation to date of sale is 800; so net carrying value is 75. The gain on the sale is therefore 125 (the
difference between the 200 cash received and the 75 net carrying value).
Account
Cash in Bank
O ffice Equipment
G ain on Sale of Assets
To record sale of old desk (equipment inventory # xxx) and chair
(equipment inventory # yyy). Cash receipt # zzz dated dd/mm/yy.
Debit
200
800
Credit
875
125
(2) Assume the purchase of a new vehicle, combined with trade-in of an old vehicle. The terms are 18,000
cash and a trade-in allowance of 2,800. The old vehicle is recorded at a cost of 6,500, with accumulated
depreciation to date of 4,500, resulting in net carrying value of 2,000. The difference between the trade-in
allowance and the net value would be recorded as a gain of 800 on the trade-in. If the trade-in allowance
had been less than net carrying value, the difference would be recorded as a loss on the trade-in.
Account
Motor V ehicles (ne w v e h icle )
Accumulated Depreciation, V ehicles (old v e h icle )
Cash in Bank
Motor V ehicles (old v e h icle )
To record the acquisition of a new vehicle, removal of an old
vehicle that was traded in, and gain on the transaction.
Debit
20,800
4,500
Credit
18,000
6,500
800
13B.06 Pay ment of Long-T erm Liab ilities

In the example in 13B.02, a long-term obligation was incurred for the purchase of employee housing. Assume
that at the end of the year an annual payment of 15,000 is made, which consists of 8,000 principal and 7,000
interest. Because this debt is related to acquisition of plant assets, the interest expense will be recorded as capital
activity or non-operating expense.
Account
Capital Activity - Interest Expense
Cash in Bank
To record annual payment of principal and interest on mortgage
related to employee housing assets.
Debit
8,000
7,000
Credit
15,000
13B.07 Funding for Future R eplacement

Assume the governing committee has voted to allocate 20,000 to fund future replacement of equipment.
Account
Unallocated Function - Transfer To Allocated
Allocated Function (nam e ) - Transfer From Unallocated
To record allocation of resources for future equipment purchase.
Debit
20,000
Credit
20,000
Appendix 13C - Accounting Entries Illustrated - U ndiv ided Plant Fund M odel
13C.01 Introduction - The following paragraphs illustrate some common plant asset accounting entries. These
illustrations apply to all organizations that use fund accounting with a single undivided plant fund.
13C.02 Acquisition of Assets
in cash from unexpended plant resources, and the remainder is financed with a long-term note and trust
deed. The total cost is divided 20,000 for the land and 80,000 for the building.
Plant Fund Account
Cash in Bank - Plant Fund
Unexpended Plant Function - Transfer To Invested in Plant
Invested in Plant Function - Transfer From Unexpended Plant
To record acquisition of land and house, for cash and trust deed
note, and to charge allocated function for the use of resources.
Debit
20,000
80,000
Credit
30,000
70,000
30,000
30,000
(2) Assume the purchase of three office desks at a price of 2,400, from unexpended plant resources.
Plant Fund Account
O ffice Equipment
Invested in Plant Function - Transfer From Unexpended Plant
To record purchase of three desks for cash. To be listed as
equipment inventory # xxx, yyy, and zzz.
Debit
2,400
Credit
2,400
2,400
2,400
(3) Assume the same facts as (2), except the payment came directly from operating resources.
O perating Fund Account
Unallocated Non-tithe Function - Transfer To Plant Fund
Cash in Bank - O perating Fund
Plant Fund Account
O ffice Equipment
Invested in Plant Function - Transfer From O perating Fund
To record purchase of three desks for cash, paid from operating
account. To be listed as equipment inventory # xxx, yyy, & zzz.
Debit
2,400
Credit
2,400
2,400
2,400
(4) Assume three desks were donated instead of purchased. Donated assets must be recorded at their fair
value, and then depreciated as if they had been purchased. Fair value must be determined as objectively
as possible usually by comparison with prices available on the open market for equivalent articles.
Plant Fund Account
O ffice Equipment
Invested in Plant Function - Revenue - Donated Assets
To record donation of three desks. Inventory # xxx, yyy, and zzz.
Debit
2,400
Credit
2,400
13C.03 Construction in Progress

Assume expenditure of 150,000 in 20X 1 as progress payments to contractors on the construction of an office
building. Assume the building is completed in 20X 2, and the remaining balance on the full contract price,
275,000, is paid in 20X 2. Assume the land value is already in the accounting records.
Plant Fund Account, in 20X 1:
Cash in Bank
Unexpended Function (nam e ) - Transfer To Invested in Plant
Invested in Plant Function - Transfer From Unexpended
Plant Fund Account, in 20X 2:
Cash in Bank
Unexpended Function (nam e ) - Transfer To Invested in Plant
O ffice Building
Debit
150,000
Credit
150,000
150,000
150,000
275,000
275,000
275,000
275,000
425,000
425,000
13C.04 Depreciation of Assets - Assume the following depreciation amounts for the period:
O ffice Building
9,250 Admin. O ffice Equipment
3,950
7,200 Community Service Equipment
2,700
10,800 Employee H ousing Equipment
1,800
Auxiliary Buildings
4,600 Auxiliary Equipment
2,200
31,850 Total Depr. on Equipment
10,650
Plant Fund Depreciation Entries:
To record depreciation on plant assets for (m onth or y e ar).
Debit
9,250
7,200
10,800
4,600
Credit
9,250
7,200
10,800
4,600
3,950
2,700
1,800
2,200
3,950
2,700
1,800
2,200
13C.05 Disposition of Assets

(1) Assume the sale of a desk and chair for 200 cash. Assume the cost of the two items was 875; and the
accumulated depreciation to the date of sale was 800, so the net value is 75.
Plant Fund Account
Unexpended Plant Function - Proceeds From Sale of Assets
Invested in Plant Function - Net V alue of Assets Sold
O ffice Equipment
To record sale of desk (# xxx) and chair (# yyy). Receipt # zzz.
Debit
200
Credit
200
800
75
875
(2) Assume the purchase of a new vehicle for 18,000 cash and 2,800 as a trade-in allowance on an old
vehicle. The old vehicle cost 6,500 and has accumulated depreciation of 4,500, for net value of 2,000.
The difference between the trade-in allowance and the net book value is recorded as a gain or loss.
Plant Fund Account
To record acquisition of new vehicle, and trade-in of old vehicle.
Debit
18,000
Credit
18,000
20,800
4,500
6,500
800
18,000
13C.06 Pay ment of Long-T erm Liab ilities

Assume a payment of 15,000 on the employee housing mortgage, consisting of 8,000 principal and 7,000
interest. The interest expense will be recorded as capital activity or non-operating expense.
Plant Fund Account
Unexpended Plant Function - Interest Expense
Mortgage Payable (nam e of le nd e r)
To record annual payment of principal and interest on mortgage.
Debit
7,000
8,000
Credit
15,000
8,000
8,000
13C.07 Funding for Future R eplacement

Assume the governing committee has voted to allocate 20,000 to fund future replacement of equipment.
Debit
Credit
20,000
20,000
Plant Fund Account
20,000
Unexpended Plant Function - Transfer From O perating Fd.
20,000
To record allocation of resources for future plant fund use.
Appendix 13D - Accounting Entries Illustrated - M ultiple Sub -Fund M odel

13D.01 Introduction - The following paragraphs illustrate some common plant asset accounting entries. These
illustrations apply to all organizations that use fund accounting with unexpended and invested in plant sub-funds.
13D.02 Acquisition of Assets
in cash from unexpended plant resources, and the remainder is financed with a long-term note and trust
deed. The total cost is divided 20,000 for the land and 80,000 for the building.
Unexpended Plant Sub-fund Account:
Plant Assets Purchased (a financial activ ity account)
Cash in Bank - Unexpended Plant Sub-fund
Invested in Plant Sub-fund Account:
Plant Assets Acquired (a financial activ ity account)
To record acquisition of land and house, for cash and mortgage.
Debit
30,000
Credit
30,000
20,000
80,000
30,000
70,000
(2) Assume the purchase of three office desks, at a price of 2,400.

O ffice Equipment
To record acquisition of equipment for cash.
Debit
2,400
Credit
2,400
2,400
2,400
13D.03 Construction in Progress

Assume expenditure of 150,000 in 20X 1 as payments on construction of office building, on land already
owned. Assume building is completed in 20X 2, and the remaining balance of 275,000 is paid in 20X 2.
Unexpended Plant Sub-fund Account, in 20X 1:
Invested in Plant Sub-fund Account, in 20X 1:
Unexpended Plant Sub-fund Account, in 20X 2:
Debit
150,000
Credit
150,000
150,000
150,000
275,000
275,000
275,000
275,000

O ffice Building
Debit
425,000
Credit
425,000
13D.04 Depreciation of Assets - Assume the following depreciation amounts for the period.
O ffice Building
Auxiliary Buildings
9,250
7,200
10,800
4,600
31,850
Admin. O ffice Equipment

Community Service Equipment
Employee H ousing Equipment
Auxiliary Equipment
Total Depr. on Equipment
Invested in Plant Sub-fund Depreciation Entries:

To record depreciation on buildings for (m onth or y e ar).
To record depreciation on equipment for (m onth or y e ar).
Debit
9,250
7,200
10,800
4,600
3,950
2,700
1,800
2,200
10,650
Credit
9,250
7,200
10,800
4,600
3,950
2,700
1,800
2,200
3,950
2,700
1,800
2,200
13D.05 Disposition of Assets

(1) Assume the purchase of a new vehicle for 18,000 cash and 2,800 as a trade-in allowance on an old
vehicle. The old vehicle cost 6,500 and has accumulated depreciation of 4,500, for net value of 2,000.
The difference between the trade-in allowance and the net book value is recorded as a gain or loss.
To record acquisition of new vehicle, and trade-in of old vehicle.
Debit
18,000
Credit
18,000
20,800
4,500
6,500
800
18,000
(2) Assume the write-off of old office equipment, thrown away because it was unusable and of no scrap value.
Cost was 900, accumulated depreciation was 890, so net value was 10.
Net V alue of Assets Sold
O ffice Equipment
To record write-off of equipment no longer in use.
Debit
890
10
Credit
900
13D.06 Pay ment of Long-T erm Liab ilities

Assume that at the end of the year an annual payment of 15,000 is made on the employee housing mortgage,
which consists of 8,000 principal and 7,000 interest. Because this debt is related to acquisition of plant assets,
the interest expense will be recorded as capital activity or non-operating expense. Also, the use of cash will
be recorded in either an unexpended plant sub-fund or a retirement of debt sub-fund, whichever the entity has
chosen to use for accumulation of resources to make the debt payments.
Unexpended Plant or Retirement of Debt Sub-fund Account:
Interest Expense
Principal Paid on Debt (a financial activ ity account)
Cash in Bank - Unexpended Plant or Retirement of Debt
Mortgage Payable (nam e of le nd e r)
Reduction of Debt Principal (a financial activ ity account)
To record annual payment of principal and interest on mortgage.
Debit
7,000
8,000
Credit
15,000
8,000
8,000
13D.07 Funding for Future R eplacement

Assume the governing committee has voted to allocate 30,000 from unallocated non-tithe resources for future
replacement of buildings and 10,000 from unallocated tithe resources for future replacement of equipment.
Unallocated Tithe Function - Transfer to Plant Fund
Unexpended Plant Sub-fund Account
Unexpended Function (Equip.) - Transfer From O perating
Unexpended Function (Buildings) - Transfer From O perating
To record allocation of resources for future plant fund use.
Debit
10,000
30,000
Credit
40,000
40,000
10,000
30,000
13D.08 Local Church and School Properties (U SA G AAP)

Local Property (asset cost account)
Non-operating Donation - Property Added (activity account)
To record acquisition of property purchased or constructed with
donations raised by local congregation.
Non-operating Expense - Depreciation on local-use properties
Accumulated Depreciation - local-use properties
To record depreciation expense on local-use properties.
Debit
750,000
Credit
750,000
12,500
12,500
Appendix 13E - H ow T o Account For M ajor And M inor R epairs

Accounting for repairs, improvements, and renovations is based upon the core accounting concept of matching
revenues and expenses. For all types of entities, this concept is described in International Accounting Standards, in
Framework Statements 94 to 97, and in IAS 16.7, 16.12, and 16.13. (Professional standards in other jurisdictions may
have similar provisions, such as FASB Concepts Statement No. 6 in the USA.) This concept is also described in
various intermediate accounting textbooks, and can be summarized as follows.
O rdinary repairs and maintenance are recorded entirely as current expense because they do not add to the value nor
materially prolong the life of the underlying asset. These types of repairs merely help to ensure that the underlying
asset will serve its originally estimated useful life and purpose.
Major repairs and renovations are capitalized, and depreciated over multiple periods, only if they meet one of the
following criteria:
(a) they significantly extend the original useful life of the underlying asset,
(b) they increase the efficiency or output of the underlying asset, or
(c) they improve the condition or quality of the asset to be more than it was when first constructed or acquired.
T he follow ing chain of questions can b e used to apply this accounting concept.
1. Does the expenditure result in a new or additional asset or component, or does the expenditure completely replace
a component that was originally capitalized as a separate part of a larger asset?
If yes, go to number 3.
If no, go to number 2.
2. Does the expenditure add any significant amount to the originally estimated useful life of the asset, or is the
expenditure significantly greater than the original cost of the underlying asset?
If yes, go to number 3.
If no, go to number 4.
3. Capitalize the expenditure.
a. If the expenditure results in a new or additional asset, capitalize it as a new asset apart from the pre-existing
asset. Depreciate this new asset according to its own estimated useful life.
b. If the expenditure replaces a separately capitalized component of a larger asset, capitalize the new
expenditure as a new asset apart from the larger asset. Depreciate this new asset according to its own
estimated useful life. At the same time, write off as a loss on disposal the remaining depreciated book value,
if any, of the component that was replaced by this new expenditure.
c.
If the expenditure prolongs the originally estimated useful life of a pre-existing asset, but does not create a
separate new asset, and the current expenditure is less than the accumulated depreciation of the pre-existing
asset, debit the current expenditure as a decrease in the accumulated depreciation account for the
pre-existing asset. Then depreciate the revised net book value over the revised remaining useful life.
d. If the expenditure prolongs the originally estimated useful life of a pre-existing asset, but does not create a
separate new asset, and the current expenditure is more than the accumulated depreciation of the pre-existing
asset, capitalize the current expenditure as a new asset apart from the pre-existing asset.
4. If you have gotten this far, the expenditure probably has one of the following characteristics.
a. It merely maintains the operating or functional efficiency of the underlying asset, or
b. It merely helps to ensure that the asset will last for its originally estimated economic useful life.
In either case, record the expenditure as repair expense of the current period.
Appendix 13F.1 - Illustrativ e Content for Lease of Land Only

CAU T ION: T he follow ing items are intended only to illustrate some of the terms ty pically seen in a lease
agreement b etw een a landlord that holds legal title to land and a tenant that has ow nership of certain
b uildings and improv ements located on that land. Any actual lease agreement should b e drafted in
consultation w ith legal counsel to ensure that the terms conform to applicab le law s and regulations and
reflect the intentions of the parties to the agreement.
Date:
Landlord:
Tenant:
(d ate of th e agre e m e nt)

(nam e and ad d re s s of th e e ntity th at h old s le gal title to th e land )
(nam e and ad d re s s of th e e ntity th at us e s th e p rop e rty )
Premises: All that land located at (ad d re s s , includ ing s tre e t, city , s tate /p rov ince ), which is titled in the name of
landlord, and upon which are located buildings and improvements used by tenant.
Use:
Rent:
Term:
(De s crip tion of th e p urp os e for us e of th e p rop e rty , s uch as to op e rate a s e cond ary s ch ool.)
(De s crip tion of am ount and fre q ue ncy of le as e p ay m e nts .)
(Som e form of re s trictiv e te rm , s uch as th e follow ing: For as long as tenant is considered, in the sole
opinion of the (nam e of gov e rning com m itte e of land lord ), to be operating a Seventh-day Adventist
Academy in accordance with the principles of the Seventh-day Adventist Church.)
Tenant Agrees To: (v arious te rm s and cond itions , includ ing b ut not ne ce s s arily lim ite d to th e follow ing)
Accept the premises in the present condition.
O bey all laws, regulations, etc. applicable to use and occupancy of the premises, including rules and
regulations of the landlord.
Maintain liability insurance for the premises and the conduct of the tenants business, naming landlord as an
additional insured, in amounts required by landlord.
Maintain casualty insurance on all tenants personal property and all improvements.
Repair, replace, and maintain all parking lots, private roads, and other land improvements located on the
premises.
Tenant Agrees Not To: (v arious te rm s and cond itions , includ ing b ut not ne ce s s arily lim ite d to th e follow ing)
Use the premises for any purpose other than that stated in the lease.
Construct major improvements without the consent of the landlord.
Landlord Agrees To:
(v arious te rm s and cond itions , includ ing b ut not ne ce s s arily lim ite d to th e follow ing)
Lease the premises to the tenant for the stated purpose.
Landlord Agrees Not To:
Interfere with tenants possession of the premises as long as tenant is not in default.
Landlord and Tenant Agree To The Following:
Any physical additions or improvements to the premises made by the tenant shall require the consent of the
landlord. Any buildings, additions, and improvements which have been made and paid for by the tenant in
the past or will be made and paid for by the tenant in the future will be owned by the tenant until the lease
expires, or is terminated, at which time ownership will transfer to the landlord.
The landlord and tenant agree that this lease conforms to an understanding of the historical relationship
between them, and does not create any new responsibilities or change the relationship of the parties.
Appendix 13F.2 - Illustrativ e Content for Lease of Land, Buildings, and Improv ements
CAU T ION: T he follow ing items are intended only to illustrate some of the terms ty pically seen in a property
use or net lease agreement b etw een a landlord that holds legal title to land and is considered the ow ner of
all b uildings and improv ements on that land, and a tenant that has b een giv en only the right to use that
property . Any actual lease agreement should b e drafted in consultation w ith legal counsel to ensure that the
terms conform to applicab le law s and regulations and reflect the intentions of the parties to the agreement.
Date:
Landlord:
Tenant:
(d ate of th e agre e m e nt)

(nam e and ad d re s s of th e e ntity th at h old s le gal title to th e land )
(nam e and ad d re s s of th e e ntity th at us e s th e p rop e rty )
Premises: All that land located at (ad d re s s , includ ing s tre e t, city , s tate /p rov ince ), which is titled in the name of
landlord, and upon which are located buildings and improvements used by tenant.
Use:
Rent:
(De s crip tion of th e p urp os e for us e of th e p rop e rty , s uch as to op e rate a s e cond ary s ch ool.)
Rent is to consist of two components:
(1) payment of (ind icate s om e nom inal am ount, s uch as $ 1 or $ 1 0 0 ) per year; and
(2) payment by the tenant of all expenses necessary for the maintenance, upkeep, and insurance related
to the land, buildings, and improvements, including materials, supplies, labor (whether rendered by adults
or students), premiums, and fees charged.
Term:
(Som e form of re s trictiv e te rm , s uch as th e follow ing: For as long as tenant is considered, in the sole
opinion of the (nam e of gov e rning com m itte e of land lord ), to be operating a Seventh-day Adventist
Academy in accordance with the principles of the Seventh-day Adventist Church.)
Tenant Agrees To: (v arious te rm s and cond itions , includ ing b ut not ne ce s s arily lim ite d to th e follow ing)
Accept the premises in the present condition.
O bey all laws, regulations, etc. applicable to use and occupancy of the premises, including rules and
regulations of the landlord.
Maintain liability and casualty insurance for the premises and the conduct of the tenants business, naming
landlord as an additional insured, in amounts required by landlord.
Maintain casualty insurance on all tenants personal property (furnishings and equipment, etc.).
Repair, replace, and maintain all parking lots, private roads, other land improvements, and all buildings located
on the premises.
Tenant Agrees Not To: (v arious te rm s and cond itions , includ ing b ut not ne ce s s arily lim ite d to th e follow ing)
Use the premises for any purpose other than that stated in the lease.
Construct major improvements without the consent of the landlord.
Landlord Agrees To:
Lease the premises to the tenant for the stated purpose.
Landlord Agrees Not To:
Interfere with tenants possession of the premises as long as tenant is not in default.
Landlord and Tenant Agree To The Following:
Any physical additions or improvements to the premises which are made by the tenant shall require the
consent of the landlord. Any buildings, additions, and improvements which are made and paid for by the
tenant will be considered to be contributed to and owned by the landlord. In the event the tenant ceases
operations, any subsequent use and/or disposal of the property will be the exclusive right of the landlord.
Chapter 14 - Liabilities
Section 1401 - Current and Noncurrent Liabilities

1401.01
1401.02
1401.03
1401.04
1401.05
1401.06
1401.07
1401.08
1401.09
1401.10
General Observations
Accounts Receivable Credit Balances
Overdrawn Bank Balances
Noncurrent Payables
Authorization
Operating and Plant Activity
Installment Purchases
General Disclosure
Capital Leases
Capital Lease Disclosure
Section 1402 - Routine Accounting

1402.01
1402.02
1402.03
1402.04
1402.05
Recording Accounts Payable

Avoid Cash-basis Recording
Accounts Payable Journal
Unpaid Invoices
Trial Balance of Accounts Payable
Section 1403 - Accrued Liabilities

1403.01
1403.02
1403.03
1403.04
1403.05
1403.06
Nature of Accrued Liabilities

Liability for Compensated Absences
Accrued Interest Payable
Other Accrued Liabilities
Retirement Plan Contributions
Obligations Related to Retirement Funding
Section 1404 - Offering Funds, Agency Accounts, and Depositor Accounts

1404.01
1404.02
1404.03
1404.04
Terminology
Funds Passed On
Agency Accounts
Deposit Accounts
Section 1405 - Organization Tax Liability

1405.01
1405.02
1405.03
Taxes in General
Exemption from Taxation
Payroll-related Taxes
Section 1406 - Provisions and Contingent Liabilities

1406.01
1406.02
1406.03
1406.04
Basic Definitions
Accounting Principles
Pending or Threatened Litigation
Guarantees of Indebtedness of Others
Appendix 14A - Country-specific Details (USA Standards)

14A.01
14A.02
14A.03
14A.04
Payroll Taxes
Tax Status for Ministers
Contingent Liabilities
Unrelated Business Income Tax

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Chapter 13 Land Building

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Chapter 13 - Land, Buildings, and Equipment

Section 1301 - Introduction

Section 1302 - Nature of Land, Buildings, and Equipment

Section 1303 - Depreciation Principles and Policies

Section 1304 - Other Plant Asset Accounting Principles

Section 1305 - Disposition of Capital Assets

Scope of the Section

Section 1306 - Fund Accounting for a Plant Fund

SDA Accounting Manual - October 2008