Question

Explain why, for income tax purposes, management of Dorsey Co. would want as little of the purchase price as possible allocated to land. (Select all that apply.)

Answer 1

In simple words, any company operating a business do not want to allocate much price to the land as it is non current asset and also it does not depreciate in value over time.

The depreciation amount reduces the taxable income of the year which further results in less taxable amount. Thus, resulting in higher profits for the company.