Question

Allocation of Package Purchase Price Joe Comey went into business by purchasing a car lubrication station consisting of land, a building and equipment. The seller's original asking price was $240,000. Comey hired an appraiser for 53.000 or the Thea t ions were Aer recen the appraisal Comey offered 13.000 for the business. The ser refused this offer. Comey the offered $100,000 for the business, which the seller accepted. Using the appraisal values as a guide allocate the total purchase price of the car lubrication station to the Land Building and quipment accounts

Answer 1

The purchase price paid should be allocated based on the appraised value of the assets The cost incurred to appraise should also be capitalised to the assets based on the appraised value. Total cost of Assets Purchase price Appraiser Cost Total Purchase price $1,90,000 $3,000 $1,93,000 Property Land Building Equipment Total Appraised Value $43,000 $95,000 $62,000 $2,00,000 Allocation of Ratio Purchase Price 21.50% [$193000 x 21.50%] $41,495 47.50% [$193000 x 47.50%] $91,675 31.00% $193000 x 31.00%] $59,830 $1,93,000