Question
In: Accounting
Alpha Company has three components in their lease agreement: the building, the equipment and the maintenance...
Alpha Company has three components in their lease agreement: the building, the equipment and the maintenance service. Total consideration in the contract is $500,000 per year. Alpha Company has identified the following standalone prices:
|
Component |
Standalone Price |
|
Building |
$400,000 |
|
Equipment |
100,000 |
|
Maintenance/Service |
50,000 |
|
Total |
$550,000 |
Calculate the percentages and allocate the consideration to each component.
Solutions
Expert Solution
| Component | Standalone price | % of standalone price | Consideration | Allocated Consideration |
| Building | $ 4,00,000 | 72.73% | $ 5,00,000 | $ 3,63,636.36 |
| Equipment | $ 1,00,000 | 18.18% | $ 5,00,000 | $ 90,909.09 |
| Maintenance/service | $ 50,000 | 9.09% | $ 5,00,000 | $ 45,454.55 |
| Total | $ 5,50,000 | $ 5,00,000 |
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