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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.

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Answer #1
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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