Allocation of Package Purchase Price Andrew Lupino went into business by purchas

Question

Allocation of Package Purchase Price

Andrew Lupino went into business by purchasing a car lubrication station consisting of land, a building, and equipment. The seller's original asking price was $210,000. Lupino hired an appraiser for $2,000 to appraise the assets. The appraised valuations were:

After receiving the appraisal, Lupino offered $180,000 for the business. The seller refused this offer. Lupino then offered $190,000 for the business, which the seller accepted. Using the appraisal values as a guide, allocate the total purchase price of the car lubrication station to the Land, Building, and Equipment accounts.

Explanation / Answer

Using the appraisal values as a guide, the total purchase price of $190,000 allocated to the car lubrication station to the Land, Building, and Equipment accounts is:

Land $38,000

Building $95,000

Equipment $57,000

As the assessed value and the total purchase price is same so the value allocated will also be same.

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