A company acquired an office building on four acres of land for a lump-sum price of $5,650,000. The building was completely equipped. According to independent appraisals, the fair values were $2,300,000, $787,000, and $619,000 for the building, land, and equipment, respectively. At what amount would the company record the building

Question

Business

Nick Compton

18 May, 11:38

A company acquired an office building on four acres of land for a lump-sum price of $5,650,000. The building was completely equipped. According to independent appraisals, the fair values were $2,300,000, $787,000, and $619,000 for the building, land, and equipment, respectively. At what amount would the company record the building

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Fernanda Escobar · Answer 1

The Company would record $ 3,506,475 for Buildings

Explanation:

For the purposes of depreciation, the Building, Land and the Equipment must be measured separately. This is because these items depreciate at different rates and also land has an unlimited useful life which means it can not be depreciated.

Thus the Fair Values are used to apportion the Lump Sum Price of $5,650,000 to the respective PPE items of Building, Land and the Equipment as follows:

Building = $2,300,000 / $3,706,000 * $5,650,000 = $ 3,506,475

Land = $787,000 / $3,706,000 * $5,650,000 = $1,199,825

Equipment = $619,000 / $3,706,000 * $5,650,000 = $ 943,699

Therefore the Company would record $ 3,506,475 for Buildings

Maryjane Conley · Answer 2

The ratio = (130:78:52) [taking out four zeroes from the end for each) = 260

hence value to be recorded for buliding = (130/260) * 23,00,000=$11,50,0009