Question

# Samtech Manufacturing purchased land and building for \$4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building: Title insurance \$ 25,000 Legal fees for drawing t

Samtech Manufacturing purchased land and building for \$4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:

 Title insurance \$ 25,000 Legal fees for drawing the contract 9,500 Pro-rated property taxes for the period after acquisition 45,000 State transfer fees 4,900

An independent appraisal estimated the fair values of the land and building, if purchased separately, at \$3 and \$2 million, respectively. Shortly after acquisition, Samtech spent \$91,000 to construct a parking lot and \$49,000 for landscaping.

Required:
1. Determine the initial valuation of each asset Samtech acquired in these transactions.
2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were \$340,000 and the salvaged materials were sold for \$5,500. In addition, Samtech spent \$88,000 clearing and grading the land in preparation for the construction of a new building.

Req 1)

 step 2) % of total fair value (step 3) Inital value 3,000,000 0.6 or 60% 2,423,640 land 2,000,000 0.4 or 40% 1,615,760 building 5,000,000 1 or 100% 4,039,400 total

step 1) 4,000,000+25,000+9,500+4,900= 4,039,400

step 3) 5,000,000/3,000,000= 0.6

5,000,000/2,000,000= 0.4

step 4) 0.6*4,039,400= 2,423,640

0.4* 4,039,400= 1,615,760

step 5) land improvement 91,000+49,000= 140,000

 assets initial valuation land 2,423,640 building 1,615,760 land improvements 140,000

Req 2)

step 1) 340,000- 5,500= 334,500

step 2) 4,000,000+25,000+9,500+4,900+334,500+88,000= 4,461,900 total cost of land

step 3) 91,000+49,000= 140,000 land improvements

step 4) building= 0

 assets initial valuation land 4,461,900 building 0 land improvements 140,000

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