Question

Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance $ 31,000 Legal fees for drawing the contract 7,500 Pro-rated property taxes for the period after acquisition 51,000 State transfer fees 5,500 An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.5 and $1.5 million, respectively. Shortly after acquisition, Samtech spent $97,000 to construct a parking lot and $55,000 for landscaping. Required: 1. Determine the initial valuation of each asset Samtech acquired in these transactions. (Enter your answers in whole dollars.) 2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $400,000 and the salvaged materials were sold for $8,500. In addition, Samtech spent $94,000 clearing and grading the land in preparation for the construction of a new building. (Enter your answers in whole dollars.)

Answer 1

Concepts and reason

Fixed Assets: Fixed assets are long term assets which are used in the business to generate revenue from the operations. These are tangible in nature and cannot be easily converted into cash. Fixed assets are also referred as capital assets or non-current assets.

Cost of the Fixed asset: The Expenditure incurred in acquiring and the expenses incurred in making the asset ready for use should be added to the cost of the asset. For eg., the expenses incurred in bringing the asset to the place of use, Installation expenses of Plant and Machinery, sales tax expenses,professianl fees, legal expenses,site preparation costs, etc.,

[Fundamentals]

When several assets are purchased in a consolidated way (for eg, land and building together) for a price, then the consideration paid is apportioned to the assets in the pool on a fair basis detemined by the extenal valuer.

Fair value: Fair value refers to the value of the asset which is exchanged and dealt in the market.

Detemine the different components to be included and then calculate the cost of the asset as follows,

Calculation of land and building value is as follows,

Subsequently after calculating the value of land and building then sum up the improvemental costs which are incurred to enhance the asset.

2)

Calualte the value of the consolidated asset when the building is demolished:

Ans: Part 1

Part 2