Journal Entry for Gain on Sale of Land

Gain on sale of land incur when the company can sell land at a higher price compared to the carrying amount.

Land is the fixed assets recorded on the company balance sheet. The land will be classified as fixed assets when the company uses it to support the operation. It can be used to build the factory, warehouse, parking, etc. On the other hand, if the company purchases land to rent and capital gain, it will be classified as an investment property.

The company acquires land by purchasing from other parties. It will record based on the purchase price plus the transaction cost which is necessary to complete the purchase. It includes the commission fees, legal fees, etc.

Different from other fixed assets, the land will not be depreciated. Its value will not reduce over time and there is no useful life as well. If the company uses the cost model, the value of land is highly likely to remain the same over the period of time.

The land may be evaluated based on the market price if the company uses a revaluation model. The fixed assets will be revalued every reporting date. The land is also revalued the same as other items under the fixed assets category.

The value of fixed assets may be changed due to land improvement. It is the cost that company spends to improve the land quality, increase its use as well as value.

When the company sells the land, they have to remove the land from balance sheet. The sale proceeds may be different from the company carrying amount. If the sale proceeds are higher than the land carrying amount, it will generate a gain on the sale of land.

Journal Entry for Gain on Sale of Land

When the company sells land to other parties, they have to remove the cost of land from the balance sheet. Different from other fixed assets, land does not have an accumulated depreciation amount, so we only remove the cost. At the same time, we have to record the amount of sale proceeds which can be cash or receivable.

If the sale proceeds are higher, the company receives gain from the selling of land. the journal entry is debiting cash/receivable and credit cost of land, gain from the sale.

Account	Debit	Credit
Cash/Receivable	$$$
Cost of Land		$$$
Gain on Sale of Land		$$$

If the amount of sale is less than the land carry amount, the company sells at loss. The journal entry is debiting cash/receivable, loss on sale of land, and credit cost of land.

Account	Debit	Credit
Cash/Receivable	$$$
Loss on Sale of Land	$$$
Cost of Land		$$$

Example

Company ABC has purchased a plot of land cost $ 100,000. A few years later, company decide to sell this land for $ 120,000 in cash. Please prepare journal entry for the sale of land.

Company purchases land for $ 100,000 and it will keep on the balance sheet. There is no other information regarding the change of land value, so the carrying amount will remain the same as the land is not depreciated.

When the company sells land for $ 120,000, it is higher than the carrying amount. It means that there are gains from the sale of land.

Gain on sale of land = Sale proceed – carrying amount = $ 120,000 – $ 100,000 = $ 20,000

Account	Debit	Credit
Cash	120,000
Cost of Land		100,000
Gain on sale of Land		20,000