Nobells Corporation has acquired a property that included both land and a building for $500,000.The corporation hired an appraiser who has determined that the market value of the land to be $300,000 and that of the building is $400,000.At what amount should the corporation record the cost of building?

Question

Quizplus · Accepted Answer

The cost of the building can be determined using the relative fair values method. The total fair value of the land and the building is $700,000 ($300,000 + $400,000). The proportion of the fair value that is attributable to the building is $400,000/$700,000, or 0.57. Therefore, the cost of the building is $500,000 x 0.57, or $285,714.

Nobells Corporation Has Acquired a Property That Included Both Land