Question

Hi, question.

I have the purchase of Land, Building and machinary for a total cost of 550,000

Fair values are as follows

Land - 320,000

Building - 200,000

Equipment - 80,000

Total -600,000

This was not a purchase of a business so therefore we can do a lump-sum acquisiton

I have done the calcuations necesaary using the formula fair value of asset / total fair value multiplied by the total cost. My question is do we still add directly attributable costs to cost of the asset in the journal entry such as delviery fees when using this lump sum acquisition method or not?

Answer 1

No, In lumsum acquisition of fixed assets, different classes of fixed assets such as land, plant, equipment purchased at a single sum paid. This method is used when fixed assets, such as land, machinery ,equipment are usually attached and not separable. If assets are not separable then attribute cost can't be allocated properly . Like delivery charges or installation charges may be applicable for equipment but not for land. Thus at the time of using lumsum acquisition method other attribute cost are not been added to the assets at a whole.