Question

A company acquired land, buildings and equipment from a bankrupt company at a lump sum price of $180,000. At the time of acquisition the company paid $12,000 to have the assets appraised. The appraisal disclosed the following values.

Land.........$120,000

Buildings..$. 80,000

Equipment $40,000

What cost should be assigned to the land, buildings and equipment respectively?

A) $96,000, $64,000 and $32,000

B) $120,000, $80,000 and $40,000

C) $90,000, $60,000 and $30,000

D) $$64,000, $64,000 and $64,000

Answer 1

Answer:

Correct answer is: A) $96,000, $64,000 and $32,000

Explanation:

Cost to be capitalized = Lump sum price paid + Appraisal cost

= $180,000 + $12,000

= $192,000

Total appraised values = Land value + Building Value + Equipment value

= $120,000 + $80,000 + $40,000

=$240,000

Cost assigned to an asset = (Appraised value of the asset / Total appraised value of all assets) * Total cost to be assigned

Hence,

Cost assigned to Land = ($120,000 / $240,000) * $192,000 = $96,000

Cost assigned to Building =  ($80,000 / $240,000) * $192,000 = $64,000

Cost assigned to Equipment = ($40,000 / $240,000) * $192,000 = $32,000

Hence option A) $96,000, $64,000 and $32,000 is correct.

In Option B, the assigned values are same as appraised values and are incorrect.

In Option C, the values assigned do not factor in appraisal cost and are incorrect.

In Option D, values are assigned equally, which cannot be the basis of assignment and are incorrect.