A company bought land and a building for $128,000.The building has a useful life of 20 years.Why should the company split the $128,000 cost between the land and the building?
A)Land is not depreciated,while the building will be depreciated over its 20-year useful life.
B)The cost should not be split between the land and building.
C)The land will be depreciated over 40 years and the building will be depreciated over 20 years.
D)Both the land and the building will be depreciated over 20 years.

Question

Quizplus · Accepted Answer

When a "basket purchase" occurs,the total cost is split among the assets in proportion to the market value of the assets as a whole.Splitting the total purchase price among individual assets is necessary because they may be used over different periods.Land is never used up,so any costs assigned to Land will remain in that account until the company sells the land.

A Company Bought Land and a Building for $128,000