Question

Pinewood Company purchased two buildings on four acres of land. The lump-sum purchase price was $2,000,000. According to independent appraisals, the fair values were $840,000 (building A) and $525,000 (building B) for the buildings and $735,000 for the land. Required: Determine the initial valuation of the buildings and the land.
Asset Initial Valuation

Land

Building A

Building B

Total

Answer 1

Answer:

Initial Assets Valuation

• Building A = $800,000
• Building B = $500,000
• Land = $700,000

Explanation:

According to the Independent Appraisal, the total value of the buildings and the land would be;

= 840,000 + 525,000 + 735,000

= $2,100,000

The initial valuation of the Assets therefore will be their weights according to the independent appraisal multiplied by the purchase price.

Building A

= $\frac{840,000}{2,100,000} * 2,000,000$

= $800,000

Building B

= $\frac{525,000}{2,100,000} * 2,000,000$

= $500,000

Land

= $\frac{735,000}{2,100,000} * 2,000,000$

= $700,000