Question 1 Matchett Machinery Ltd. acquired a new site for its manufacturing ope

Question

Question 1 Matchett Machinery Ltd. acquired a new site for its manufacturing operations. The company was able to find the ideal location in terms of lot size and highway access. Matchett paid $3.60 million to acquire the site. The bank, which was providing Matchett with the financing for the purchase, required that an appraisal be completed of the property. The appraisal report came back with the following estimated market values: land $1,700,000, building $1,088,000, and land improvements $612,000 Matchett explained, to the bank's satisfaction, that it paid the $200,000 premium because of the savings it would realize from minimizing transportation distances given the site's superior highway access (a1) Allocate the $3.60-million purchase price to the land, building, and land improvements. Allocation cost Land Building Land Improvements

Explanation / Answer

a) Allocation cost :

Appraisal value Allocation cost Land 1700000 1700000*3600000/3400000 1800000 Building 1088000 1088000*3600000/3400000 1152000 Land improvement 612000 612000*3600000/3400000 648000 Total 3400000 3600000

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