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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