Question

A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. the property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. what should be the allocation of this property's costs in the company's accounting records

Answer 1

The company should allocate $115,850 (70%*$165,500) for land and $49,650 (30%*$165,500) for building in its accounting record. The total cost for the land and the building that the company has bought is $165,500 (150,000 + (7%*$150,000) + $5000). The lump sump portion above (70% and 30%) must be obtained by dividing each of the asset market value by the total asset market value (Land: ($87,500+$35,000)/($87,500+$35,000+$52,500); Building: $52,500/($87,500+$35,000+$52,500)).