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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Utica Corporation paid $360,000 to purchase land and a building. An appraisal showed that the land is worth $100,000 and the building is worth $300,000. What cost should Utica assign to the land and to the building, respectively?
Ascertain the cost assigned to the land and to the building.
Determination of cost:
The procurement or acquisition cost of “property, plant and equipment” comprises of all costs that are required to obtain the benefits to be derived from the asset.
Cost assigned to land and building is computed as follows:
| Asset | Appraisal value | Relative fair value | × | Total cost | = | Allocated cost |
| Land | $100,000 | (1) 25% | $360,000 | $90,000 | ||
| Building | $300,000 | (2) 75% | $360,000 | $270,000 | ||
| Total | $400,000 | $360,000 |
Table (1)
Working note:
(1) Calculate the percentage of relative fair value of land:
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