Land, buildings and equipment are acquired for a lump sum of $ 850 comma 000. The market values of the three assets are, respectively, $ 250 comma 000 , $ 480 comma 000 and $ 180 comma 000. What is the cost assigned to the equipment?

Question

Business

Esperanza Kemp

8 January, 01:30

Land, buildings and equipment are acquired for a lump sum of $ 850 comma 000. The market values of the three assets are, respectively, $ 250 comma 000 , $ 480 comma 000 and $ 180 comma 000. What is the cost assigned to the equipment?

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Answers (1)

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Dax Benjamin · Answer 1

Answer: $168,131.87

Explanation:

In such a Scenario where a group of Fixed Assets were purchased for a lump sum amount and the individual figures are needed for proper accounting records, the market values of the component assets can be used to determine how the lump sum should be apportioned.

This can be done using the following formula,

= (Lump sum amount / Sum of market values) x Market value of fixed asset

The Asset in question here is the Equipment.

The total sum of the Market Values is,

= 250,000 + 480,000 + 180,000

= $910,000

The market value of the Equipment is $180,000 and the lump sum was $850,000.

The cost of Equipment will therefore be,

= (Lump sum amount / Sum of market values) x Market value of fixed asset

= (850,000 / 910,000) * 180,000

= $168,131.87