Final answer:
It is true that in a transaction involving the acquisition of multiple assets, the total contract price can be allocated across the individual assets based on their relative fair market values for purposes such as depreciation and tax reporting.
Step-by-step explanation:
True, when multiple assets are acquired in a single transaction, the contract price may indeed be allocated.
In transactions where a business or an individual acquires multiple assets in a single purchase, it is common practice to allocate the total contract price among the various assets. This allocation is based on the relative fair market values of each asset at the time of acquisition. The rationale behind this approach is to accurately reflect the cost of each asset for accounting and tax purposes. For example, if a company purchases a bundle of assets including machinery, buildings, and land, it must allocate the purchase price between these assets in a manner that represents their individual fair values.
This process ensures that when an asset is later depreciated or disposed of, the financial records accurately represent the gain or loss on that particular asset. There are established accounting standards, such as the Generally Accepted Accounting Principles (GAAP) in the United States, which provide guidance on how to allocate the purchase price in such transactions.