Question

A company acquired an office building on three acres of land for a lump-sum price of $2,400,000. The building was completely equipped. According to independent appraisals, the fair values were $1,300,000, $780,000, and $520,000 for the building, land, and equipment, respectively. At what amount would the company record the building?

Multiple Choice

• $720,000.

• $1,200,000.

• None of these answer choices are correct.

• $1,300,000.

Answer 1

This is example of basket purchase.

This occurs when buyer acquires a group of assets in single purchase transaction at the amount less than it's combined market value of individual products.

In such cases to record the asset the proportional value of asset is recorded as book value.

Here if we combine market value of Individual assets it comes to $26,00,000 ($13,00,000 + $780,000 + $520,000). So the proportion of building in this is 50% (13,00,000 / 26,00,000). So the building should be recorded at $12,00,000 (50% of $24,00,000)

So correct answer is $1,200,000