A company acquired an office building, land, and equipment in a single basket purchase. The fair values were $1,200,000, $600,000, and $200,000 for the building, land, and equipment, respectively. The company recorded the building for $1,080,000. What was the total purchase cost for all three assets?

6: 3: 1 for Office Building $1,200,00 : Land $600,000 : Equipment $200,000. Therefore, office building represents 60%, Land 30%, and Equipment 10% of the cost.

Since the Office building costs $1,080,000, using the above fair values ratio, this cost represents 60% of the total.

Therefore, the total cost will be $1,800,000 ($1,080,000/60 X 100).

The total purchase cost for all three assets is obtained using the proportion method of cost allocation based on the given fair values.

marvineetesh3 marvineetesh3 · Answer 2 · 2022-03-04T13:00:24+01:00

The total purchase cost for all three assets would be $1,800,000, if a company acquired building, land, and equipment in a single basket purchase.

What is basket purchase?

Basket purchase refers to purchasing the number of assets by passing the single transaction entry, It is also called as the lump sump acquisition.

Calculation of basket purchase cost :

First, it is necessary to determine the ratios of three assets, that are:

[tex]=\text{Office Building}: \text{Land}:\text{Equipment}\\\\}=\$1,200,000: \$600,000:\$2,00,000\\\\=6:3:1.[/tex]

This means that the office building represents 60%, land represents 30% and equipment represent 10% of the total assets.

Now, the Office building costs are given which is, $1,080,000.

According to the fair valuation ratio, the cost of building represents 60% of the total cost, means:

The total cost will be:

[tex]\text{Total Cost}= \dfrac{\$1,080,000}{60} \times 100\\\\\text{Total Cost}=\$1,800,000.[/tex]

Therefore, the total purchase cost for all three assets is $1,800,000.

Learn more about the basket purchase, refer to:

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