MCI is looking into purchasing its next store already. MCI has found a good deal on...

MCI is looking into purchasing its next store already. MCI has found a good deal on a new property that contains land and building. MCI is offered both land and building for $500K in cash, but an independent valuation expert suggests the land is actually worth $375K and the building is actually worth $250K. Can you give some ideas to MCI about how they might account for this transaction once they go through with this deal?

Expert Solution

The combined offered cost of land and building = $500K

However ,from the independent valuation of an expert it is found that land is actually worth $375K and Building is actually worth $250K, for a total worth of $625K (375K+250K).

Land and Building are to be recorded at thier acquisiton cost and must be accounted separately.

The logicalo way to account for this transaction is to apportion the total $500K in proprtion to thier actual worth.

land will be allocated 60% of the cost , i.e (375/625*100)

Building will be allocated 40%, ,i.e (250/625*100)

Therefore

Assign $ 300K to the land account ,i.e 60% of $500K

Assgn $200K to the building account,i.e 40% of 500K

ekkarill92 answered 2 years ago

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