Land, buildings, and equipment are acquired for a lump sum of $950,000. The fair values of the three assets are respectively, $200,000, $500,000, and $300,000. What is the cost assigned to the building?

Question

Quizplus · Accepted Answer

The cost assigned to each asset is based on the proportion of its fair value to the total fair value of all assets. The total fair value of all assets is $1,000,000 ($200,000+$500,000+$300,000). Therefore, the building's proportion of the total fair value is $500,000/$1,000,000, or 50%. This means the cost assigned to the building is also 50% of the lump sum acquisition cost, which is $475,000.

Land, Buildings, and Equipment Are Acquired for a Lump Sum