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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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  1. 18 May, 11:59
    0
    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
  2. 18 May, 12:59
    0
    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
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