A company acquired an office building, land, and equipment in a single basket purchase. The fair values were $1,200,000, $600,000, and $200,000 for the building, land, and equipment, respectively. The company recorded the building for $1,080,000. What was the total purchase cost for all three assets?

Question

Titan

Business

5 January, 19:03

A company acquired an office building, land, and equipment in a single basket purchase. The fair values were $1,200,000, $600,000, and $200,000 for the building, land, and equipment, respectively. The company recorded the building for $1,080,000. What was the total purchase cost for all three assets?

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Morgan · Answer 1

The total purchase cost for all three assets is $1,800,000.

Explanation:

Ratios based on fair values were:

6: 3: 1 for Office Building $1,200,00 : Land $600,000 : Equipment $200,000. Therefore, office building represents 60%, Land 30%, and Equipment 10% of the cost.

Since the Office building costs $1,080,000, using the above fair values ratio, this cost represents 60% of the total.

Therefore, the total cost will be $1,800,000 ($1,080,000/60 X 100).

The total purchase cost for all three assets is obtained using the proportion method of cost allocation based on the given fair values.