Question

8.Darrin Brown bought a pub. The purchase price was $695,000. An appraiser provided the following appraisal values: land $320,000: building $370,000 and equipment $60,000. What cost should be allocated to the building

Answer 1

The purchase price allocated to building is $342,866.67 as shown by the below computation.

Step-by-step explanation:

The purchase price of $695,000 is for the three assets namely: land, building and equipment,hence in determining the purchase of building, we share the $695,000 between the assets in the ration of their appraisal values.

Total appraisal values=$320,000+$370,000+$60,000

Total appraisal values=$750,000

Purchase price of building =$695,000*$370,000/$750,000

Purchase price of building=$342,866.67

Ordinarily, the asset could also be recognized at fair value which is value shown by the appraisal carried out by the appraiser.