Question

Hatter Company purchased land, a building, and equipment for $450,000 on January 1, Year 1. The land had an appraised value of $100,000. The building had an appraised value of $320,000. The equipment had an appraised value of $80,000. Compute the cost to be assigned to the building.

Answer 1

the cost to be assigned to the building is $288,000

Step-by-step explanation:

The Costs of Land, Building and Equipment have to be determined separately due to the fact that their usage is different and hence depreciation charges are different.

The Appraisal value is used to apportion the cost of $450,000 to the Land, Building and Equipment as follows :

PPE Item Appraised Value

Land $100,000

Building $320,000

Equipment $80,000

Total $500,000

Apportionment of Cost to Building :

Building = $320,000/ $500,000× $450,000

= $288,000