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# Samtech Manufacturing purchased land and building for \$4 million. In addition to the purchase price, Samtech...

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 \$ 21,000 Legal fees for drawing the contract 7,500 Pro-rated property taxes for the period after acquisition 41,000 State transfer fees 4,500

An independent appraisal estimated the fair values of the land and building, if purchased separately, at \$3.9 and \$1.1 million, respectively. Shortly after acquisition, Samtech spent \$87,000 to construct a parking lot and \$45,000 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 \$300,000 and the salvaged materials were sold for \$8,500. In addition, Samtech spent \$84,000 clearing and grading the land in preparation for the construction of a new building.

 1 Value to be Capitalized = \$40,00,000 + \$21,000 + \$7,500 + \$4,500 = \$              40,33,000 Assets Fair Value (a) Percentage (b) = [(a)/ Total] Proportional Value (b X Total) Land \$    39,00,000 78% \$     31,45,740 Building \$    11,00,000 22% \$        8,87,260 Total \$    50,00,000 \$     40,33,000 Land = \$              31,45,740 Building = \$                8,87,260 Land Improvements = (\$87,000 + \$45,000) = \$                1,32,000 2 Computation of Cost of Land: Purchase Price = \$              40,00,000 Title Insurance = \$                    21,000 Legal fees = \$                      7,500 State transfer fees = \$                      4,500 Demolition cost = \$                3,00,000 Cleaning and grading cost = \$                    84,000 Salvage value of material = \$                    -8,500 Cost of Land = \$              44,08,500 Land = \$              44,08,500 Building = 0 Land Improvements = (\$87,000 + \$45,000) = \$                1,32,000

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