Land, buildings and equipment are acquired for a lump sum of $875,000. The market values of the three assets are, respectively, $200,000, $500,000 and $300,000. What is the cost assigned to the equipment?

Question

Quizplus · Accepted Answer

We need to allocate the cost based on the market values, so we can use proportions.

Total market value = $1,000,000 
Equipment market value = $300,000

Proportion of equipment market value = $300,000 / $1,000,000 = 0.3

Cost of equipment = Proportion of equipment market value * Total cost 
Cost of equipment = 0.3 * $875,000 = $262,500

Therefore, the cost assigned to the equipment is $262,500, which corresponds to choice (B).

Land, Buildings and Equipment Are Acquired for a Lump Sum