Question

A company purchased land with a building for a lump-sum cost of $2,570,000 ($500,000 paid in...

A company purchased land with a building for a lump-sum cost of $2,570,000 ($500,000 paid in cash and thebalance on a long-term note). It was estimated that the land and building had market values of $600,000 and$2,400,000, respectively.

Determine the cost to be apportioned to the land and to the building.

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Answer #1

Solution:

Lumpsum cost of land & building = $2,570,000

Market value of land = $600,000

Market value of Building = $2,400,000

Cost to be approtioned to land = Total cost * Market value of land / Combined market value of land & Building

= $2,570,000 * $600,000 / $3,000,000 = $514,000

Cost to be approtioned to Building = Total cost * Market value of Building / Combined market value of land & Building

$2,570,000 * $2,400,000 / $3,000,000 = $2,056,000

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