Determining the cost of individual assets in a lump-sum purchase of assets

Posted by : Unknown Wednesday, 26 December 2012

Determining the cost of individual assets in a lump-sum purchase of assets

Based On The Course by Andre Altmeyer

The relative fair value percentages are multiplied by the lump-sum purchase price to determine the initial valuation of each of the separate assets. Notice that the lump-sum purchase includes inventories. The procedure used here to allocate the purchase price in a lump-sum acquisition pertains to any type of asset mix, not just to property, plant, and equipment and intangible assets.

Problem

Dickson Carriers pays 140.000 € for a group purchase of land, building and equipment. At the time of acquisition current market of the different components were following:

Component	Market value
	amount in €
Land	75 000
Building	45 000
Equipment	30 000
	150 000

Prepare

· Journalise the lump-sum purchase of the 3 assets for a total of 140.000 €. The company signs a note payable for this amount.

Plan

Fix the ratio in the global market value for each asset; use these percentages to determine the cost of each asset.

Execute

% of each asset in the total market value

Component	Market value	% of each asset	Purchase
	amount in €
Land	75 000	50%	70 000
Building	45 000	30%	42 000
Equipment	30 000	20%	28 000
	150 000		140 000