Allocation of Package Purchase Price Tamock Company purchased a plant from one o

Question

Allocation of Package Purchase Price Tamock Company purchased a plant from one of its suppliers. The $950.000 purchase price included the land, a building, and factory machinery. Tamock also paid $6.000 in legal fees to negotiate the purchase of the plant.An appraisal showed the following values for the items purchased Assessed Value Property Land Building Machinery318,000 126,000 456,000 Total $900.000 using the assessed value as a guide, allocate the total purchase price of the plant to the land, building, and machinery accounts in Tamock Company's records Do not round until your final answers, Round answers to the nearest dollar Allocation of Asset Purchase Price Land Building

Explanation / Answer

Ans. 1 Calculation of total cost incurred for acquiring Property plant equipment

Purchase price    = $950000

Legal price           = $6000 ( incurred for the purpose of acquiring plant related to plant only)

Allocation of purchase price base on assess value

                                                Assess Value                    Allocation of purchase price

Land                                       126000                              133000                 (126000/900000X950000)

Building                                  456000                             481333

Machinery                               318000                             335667

Total                                        900000                             950000

The allocation value of Land                       = 133000

The allocation value of Building                 = 481333

The allocation value of Plant                       = 341667

(335667+6000)

Ans. 2 Calculation of Deprecation for the year of 2nd yr

a. Straight line (20000-2000) /4 = $4500

b. Double Decling method

Stright line depreciation rate = 4500/18000 = 25%

Depreciation rate under double decling method (25X2) = 50%

Depreciation for the first year (20000X50%) = $10000

Depreciation for the second year (20000-10000)X50% = $5000

c. Calculation of depreciation for the second year using units of production (20000-2000)/100000 = .18 per miles

Truck was driven 30000 for second year

Depreciation for the second using unit of production (.18X30000) = $5400

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