Question

On January 1, 2015 Timmy Co, purchased a tract of land and a building for a lump sum total of $800,000. At the date of acquisition, the fair value of the land and building was $600,000, and $400,000, respectively. Calculate the valuation of the fixed assets.

Answer 1

To calculate the valuation of the fixed assets, allocate the purchase price between the land and the building based on their fair values. Multiply the total purchase price by the proportion allocated to each asset to find their valuations. The valuation of the fixed assets is $480,000 for the land and $320,000 for the building, totaling $800,000.

Step-by-step explanation:

To calculate the valuation of the fixed assets, we need to allocate the purchase price between the land and the building based on their fair values. The fair value of the land is $600,000 and the fair value of the building is $400,000, making a total fair value of $1,000,000. To find the proportion of the total purchase price that should be allocated to each asset, we can use the fair value proportions: $600,000 / $1,000,000 = 0.6 (land) and $400,000 / $1,000,000 = 0.4 (building).

Next, we can calculate the valuation of the land by multiplying the total purchase price by the proportion allocated to the land: $800,000 * 0.6 = $480,000. Similarly, we can calculate the valuation of the building by multiplying the total purchase price by the proportion allocated to the building: $800,000 * 0.4 = $320,000.

Therefore, the valuation of the fixed assets is $480,000 for the land and $320,000 for the building, totaling $800,000.