Question

samtech manufacturing purchased land and building for 3 million. In addition to the purchase price samtec made the following expenditures in connection with the purchase of the land and building. Title Insurance 30,000. Legal fees for drawing the contract 7000. Prorated property taxes for the. After acquisition 50,000. State transfer fees 5400. An independent appraisal estimated the fair values of the land and building if purchased separately at 3 and 1 million respectively shortly after acquisition samtec spent 96,000 to construct a parking lot and 54000 for landscaping determine the initial evaluation of each asset assuming that immediately after acquisition samtec demolish the building and the demolition cost for 390,000 and the Salvage materials were sold for 8000. In addition stamp tax spent 93,000 clearing and grading the land in preparation for the construction of a new building

Answer 1

1) Calculation of initial valuation of each asset acquired :-

Cost of Land and Building

Particulars	Amount($)
Cost of land and buildings	3,000,000
Title Insurance	30000
Legal Fees	7000
State Transfer Fees	5400
Total Cost	3042400

Cost of Allocation :-

Assets	Fair value	% of Fair Value (A)	Total Cost Allocated (Total Cost *A)
Land	$3000000	($3000000/$4000000)*100=75%	$2281800
Building	$1000000	($1000000/$4000000)*100=25%	$760600
Total	$4000000		$3042400

Initial Valuation of Land = $2281800

Initial Valuation of building = $760600

Land Improvement ;-

Particulars	Amount($)
Land	96000
Building	54000
Total Cost	150000

2)

Particulars	Amount($)	Amount($)
Purchase Price		3000000
Title Insurance		30000
Legal Fees		7000
State Transfer Fees		5400
Demolition Costs	390000
Less : Salvage of Material	(8000)	382000
Clearing and grading costs		93000
Total Cost of Land		3517400
Land Improvement ;-
Parking Lot		96000
Landscaping		54000
Total Land Improvement		150000