Question

On January 1, Mitzu Co. pays a lump-sum amount of $2,600,000 for land, Building 1, Building 2, and Land Improvements 1. Building 1 has no value and will be demolished. Building 2 will be an office and is appraised at $701,500, with a useful life of 20 years and a $75,000 salvage value. Land Improvements 1 is valued at $488,000 and is expected to last another 16 years with no salvage value. The land is valued at $1,860,500. The company also incurs the following additional costs.

Cost to demolish Building 1$344,400 Cost of additional land grading 195,400 Cost to construct Building 3, having a useful life
of 25 years and a $400,000 salvage value 2,222,000 Cost of new Land Improvements 2
having a 20-year useful life and no salvage value 178,000

. Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

Need help with the percentages

Answer 1

Solution:-

Allocation of Purchase Price	Appraised Value	% of total appraised value	X	Total Cost of Acquisition	=	Apportioned Cost
Land	$1,860,500	61% (1,860,500 / 3,050,000) X100	X	$2,600,000	=	$1,586,000
Building 2	$701,500	23% (701,500 / 3,050,000) X100	X	$2,600,000	=	$598,000
Land improvement 1	$488,000	16% (488,000 / 3,050,000)X100	X	$2,600,000	=	$416,000
TOTAL	$3,050,000	100%				$2,600,000

Particulars	Land	Building 2	Building 3	Land Improvements 1	Land Improvements 2
Purchase price	$1,586,000	$598,000	-	$416,000	-
Demolition*	$344,400	-	-	-	-
Land Grading	$195,400
New building (Construction cost)	-	-	$2,222,000	-	-
New improvements					$178,000
TOTAL	$2,125,800	$598,000	$2,222,000	$416,000	$178,000

*The cost of demolition of building 1 can be directly attributable to cost of the land ( Reference IAS 16 par. 16).