Question

Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2019, at a total cash price of $900,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $508,800; land, $297,600; land improvements, $28,800; and four vehicles, $124,800. The company's fiscal year ends on December 31.

Answer 1

27,000 $ 5 Years Cost (a) Depreciable life Declining- Balance rate (b) Yearly Depreciation expense (a x b) $ 40% 10,800 Working Notes: 1) Allocation of lump sum purchase price to separate assets Allocation of Lump- sum Price Market price (A) Building Land Land improvements Four Vehicles Total 508,800 297,600 28,800 124,800 960,000 % Allocated B= (A / Total Marketprice) 0.53 0.31 0.03 0.13 (BⓇ$ 900,000) $ 477,000 279,000 27,000 117,000 900,000 $ 2) Double declining balance rate Life Rate (100/life x 2) 5 years (100/life x 2) (100/ 5 years x 2) 40%