A combined purchase is not one depreciation unit by default
Ind AS 16 paragraph 58 treats land and buildings as separable assets accounted for separately even where acquired together. Generally land has unlimited useful life and is not depreciated; buildings have limited life and are depreciable. An increase in the land's value does not affect determination of the building's depreciable amount. This guide concerns owner-used PPE within Ind AS 16, not inventory, investment-property classification or a lease accounting conclusion.
Support the allocation of the purchase cost
Reconcile the total recognised cost to separately supported land and building components. A contract giving one price does not remove the separation requirement. Obtain appropriate valuation and acquisition evidence and document the basis. The relative-value allocation in the examples is expressly a stipulated supported model, not a universal statutory formula or a substitute for the actual transaction analysis.
Determine building depreciation independently
Apply the building's supported cost, residual value, useful life and consumption method, with component accounting where required. Begin depreciation when available for use under paragraph 55, not merely at first rental or commercial receipt. Reconcile company-law useful-life requirements separately where applicable; an assumed numerical life in an illustration does not establish a prescribed life for every building.
Unlimited-life land is a general rule with exceptions
Paragraph 58 identifies exceptions such as quarries and landfill sites. Paragraph 59 also recognises that land itself may have limited life and is then depreciated in the manner reflecting its benefits. Do not label every item described as land “never depreciable”. Conversely, this exception is not permission to depreciate ordinary freehold land without a supported limited-life basis.
Restoration cost can require a separate depreciation working
Under paragraph 59, where land cost includes site dismantlement, removal and restoration costs, that portion is depreciated over the period of benefits from incurring those costs. Keep the restoration component separate from the underlying unlimited-life land. Recognition and measurement of the relevant obligation require their own analysis; the examples stipulate a correctly recognised component and do not calculate a provision or discount unwind.
Review estimates without netting unrelated appreciation
Paragraph 51 requires annual useful-life and residual-value review; impairment and any revaluation require their separate frameworks. Do not use an unrecognised land valuation surplus as an informal credit against depreciation expense. Preserve cost allocation, readiness evidence, estimates and depreciation schedules for the building and relevant land components. Illustrations exclude tax effects and stipulate straight-line/equal-month models.
Framework checked on 26 October 2026. Read the primary provisions.
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Separate the purchase
Assume total correctly recognised cost ₹1,00,00,000 is supported as land ₹40,00,000 and building ₹60,00,000. Building residual ₹10,00,000 and useful life 25 years give annual straight-line depreciation ₹2,00,000; unlimited-life land has no depreciation in this model.
Illustrative example 2: Do not depreciate the combined price
Using total ₹1,00,00,000 less building residual ₹10,00,000 over 25 years would give ₹3,60,000. Correct building depreciation above is ₹2,00,000, so the combined-cost shortcut overstates it by ₹1,60,000.
Illustrative example 3: Relative-value model
Assume supported relative values land ₹30,00,000 and building ₹70,00,000 are the appropriate allocation basis for total cost ₹80,00,000. Allocation is land ₹24,00,000 and building ₹56,00,000. With building residual nil and model life 28 years, annual depreciation is ₹2,00,000.
Illustrative example 4: Appreciation does not cancel depreciation
Assume building depreciation ₹2,00,000 and an unrelated estimated land-value increase ₹5,00,000. Building charge remains ₹2,00,000 on unchanged estimates. Netting the two into a ₹3,00,000 credit is not the paragraph 58 depreciation working.
Illustrative example 5: Restoration component
Assume unlimited-life land base ₹20,00,000 plus a separately recognised restoration component ₹3,00,000 benefiting six years, with nil residual for that component. Its model annual depreciation is ₹50,000; the ₹20,00,000 base is not depreciated on these facts.
Illustrative example 6: Genuinely limited-life land
Assume a supported limited-life land asset has depreciable amount ₹12,00,000 and a 12-year straight-line benefit pattern. Annual depreciation is ₹1,00,000. Calling it land does not override the stipulated paragraph 59 facts.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm asset framework | Owner-used PPE versus other standards. |
| 2 | Read acquisition evidence | Price, rights and transaction scope. |
| 3 | Separate land and building | Supported cost allocation. |
| 4 | Identify building components | Material parts and useful-life evidence. |
| 5 | Establish readiness | Available-for-use date. |
| 6 | Assess land life | Unlimited or supported limited-life facts. |
| 7 | Separate restoration component | Recognised costs and benefit period. |
| 8 | Compute depreciation | Cost, residual, life and method. |
| 9 | Review estimates and impairment | Annual assessment and separate frameworks. |
| 10 | Reconcile registers | Total cost, component schedules and general ledger. |
Sixteen practitioner FAQs
1. Can a single purchase price remain one unit automatically?
Paragraph 58 requires separate land/building accounting.
2. Is ordinary unlimited-life land depreciated?
Generally no, under the stated rule.
3. Are buildings depreciable?
Their limited useful life requires the applicable depreciation.
4. Does land appreciation cancel the building charge?
No.
5. Is every kind of land unlimited-life?
The standard recognises exceptions.
6. Are quarry and landfill sites mentioned?
Paragraph 58 identifies those examples.
7. Can limited-life land be depreciated?
Apply paragraph 59 and the supported benefit pattern.
8. What about a restoration component in land cost?
Depreciate that portion over its benefit period as specified.
9. Does this calculate the restoration liability?
The obligation needs separate recognition and measurement analysis.
10. Is relative-value allocation always mandated?
The illustration assumes it is the supported basis for its facts.
11. Do model lives replace company-law requirements?
Reconcile the actual applicable framework separately.
12. When does building depreciation begin?
Apply available-for-use requirements.
13. Can first revenue be the sole start test?
It is not the universal paragraph 55 trigger.
14. Should useful life and residual be reviewed?
Paragraph 51 requires review at least each financial year-end.
15. Does no land depreciation eliminate impairment review?
No. Review the applicable impairment framework.
16. What should the file reproduce?
Allocation, readiness, land-life conclusion, component estimates and depreciation.
Conclusion
Ind AS 16 separates land and buildings even when bought together. Land is generally not depreciated where its useful life is unlimited, but buildings and qualifying restoration components are depreciable. Rising land value does not cancel building depreciation.