Question

In a lump-sum purchase of assets, the cost must be allocated to the individual assets because?

1) The assets have different useful lives.
2) Goodwill must be expensed immediately.
3) Intangible assets must be identified and expensed.

Answer 1

In a lump-sum purchase of assets, the cost must be allocated to the individual assets to accurately report their value and match expenses with revenue.

Step-by-step explanation:

In a lump-sum purchase of assets, the cost must be allocated to the individual assets because:

1. The assets have different useful lives.
2. Goodwill must be expensed immediately.
3. Intangible assets must be identified and expensed.

Allocating the cost to individual assets allows for accurate reporting of their value and helps to match expenses with the corresponding revenue generated by each asset. Furthermore, it ensures that the financial statements reflect the true economic value of each asset.