Allocation of Package Purchase Price Andrew Lupino went into business by purchas
ID: 2782245 • Letter: A
Question
Allocation of Package Purchase Price
Andrew Lupino 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. Lupino hired an appraiser for $3,000 to appraise the assets. The appraised valuations were:
After receiving the appraisal, Lupino offered $183,000 for the business. The seller refused this offer. Lupino then offered $187,000 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 Equipment accounts.
Property Assessed Value Land $43,000 Building 95,000 Equipment 62,000 Total $200,000
Explanation / Answer
Lets first calculate the percentage of various assets in total value.
Percentage of Land = 43000/ 200000 = 21.5%
Percentage of Building = 95000/ 200000 = 47.5%
Percentage of Machinery = 62000 / 200000 = 31%
Now we will allcoate the purchase price among these assets in the same proportion.
Thus Value of Land = 21.5% of 187000 = 40205
Value of Building = 47.5% of 187000 = 88825
Value of Machinery = 31% of 187000 = 57970
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