Journal Entry for Sale of Land

Land is the company property that is recorded as the fixed assets on balance sheet. The company purchase land for operation purpose. It is classified as fixed assets as it will last for longer than a year. Moreover, the land will not depreciate over life which makes it different from other fixed assets.

The company usually records land in a separate account from other fixed assets. It allows the user to review it very quickly. Depending on the type of ownership, the company has the right to take benefit from the land such as water, fishing, and mining right.

The land is initially recorded at cost, and subsequently, measure at cost or revaluation method. If the company uses the cost method, the land will remain the same forever. If the company uses the fixed assets revaluation method, the balance will change depending on the revaluation method. It can be increased or decreased depending on the fair value of each plot of land.

When companies sell land, they need to remove it from the balance sheet and record the cash or receivable.

Journal Entry for Sale of Land

The company needs to remove land from balance sheet when they sell the land. At the same time, they need to record cash or receivables that are equal to consideration. The difference between land book value and consideration is recorded as gain or loss to the income statement.

Consideration is the payment made by one party to another in exchange for the transfer of ownership of assets. Land consideration is the amount that company receives in exchange for the selling of land.

Book value is the amount that company record on the balance sheet. It may be different if the company uses cost or revalution method.

Gain: happens when the land consideration is bigger than the land book value.

Loss: happens when the land consideration is smaller than the land book value.

When the company sells land for higher than book value, they will make a gain. So the journal entry will debit cash/receivable, credit land, and gain

Cash/Receivable will increase in the current assets section on balance sheet. Land is removed from balance sheet and gains from the disposal will record on the income statement.

On the other hand, when the company sells land at lower than book value, it will make a loss on the transaction. The journal entry is debiting Cash/Receivable, Loss on disposal, and credit land.

Loss on disposal will be present on the income statement as other income/loss.

Journal Entry for Sale of Land

Company ABC has purchased two plots of land from the real estate company. The land plot A and B cost $ 500,000 and $ 800,000 respectively. Company uses the land to build a warehouse to store any tools and equipment. Company uses the cost method, so the book value of the land will remain the same.

During the year, company sold both lands:

• Land plot A is sold for $ 700,000 and receives cash immediately.
• Land plot B is sold for $ 650,000 on credit.

Please prepare journal entry for the sale of land.

Land plot A has book value of $ 500,000 and is sold for $ 700,000. It means ABC has make gain of $ 200,000 ($ 700,000 – $ 500,000). The company needs to make a journal entry of debiting cash $ 700,000, credit land $ 500,000, and gain of land disposal $ 200,000.

The transaction will increase cash balance 700,000 and decrease Land $ 500,000 from balance sheet. Gain on disposal will increase $ 200,000 on income statement.

Land plot B is sold for $ 650,000 while the book value is $ 800,000. ABC loss $ 150,000 from the sale of this land. The journal entry is debiting receivable $ 650,000, Loss on disposal $ 150,000 and credit Land $ 800,000.

The transaction will increase receivable on balance sheet and decrease land from fixed assets balance. Loss on disposal will record on the income statement.