Purchasing a New Warehouse: How to Allocate the Purchase Price
How should the purchase price be allocated to the land, building, and land improvements?
Based on the appraisal report, what are the estimated market values for each component?
Allocation of Purchase Price
For allocating the purchase price to the land, building, and land improvements, we need to determine the proportionate values of each component based on the appraisal report.
When allocating the purchase price for the acquisition of the new warehouse, it is crucial to consider the estimated market values provided in the appraisal report. The report indicated the following estimated values for each component:
- Land: $1,629,674
- Building: $2,829,434
- Land Improvements: $539,892
To allocate the purchase price appropriately, we can calculate the proportionate values of each component by determining the ratio of their value to the total value of all components:
The total value of all components is calculated as $1,629,674 + $2,829,434 + $539,892 = $4,999,000. Using this total value, we can calculate the proportionate values for each component:
- Land: ($1,629,674 / $4,999,000) * $4,884,000 = $1,579,313
- Building: ($2,829,434 / $4,999,000) * $4,884,000 = $2,754,649
- Land Improvements: ($539,892 / $4,999,000) * $4,884,000 = $528,038
Therefore, the purchase price should be allocated as follows:
- Land: $1,579,313
- Building: $2,754,649
- Land Improvements: $528,038
It is important to note that these values are estimates derived from the appraisal report and may not reflect the actual market values. The allocation is based on the proportionate values indicated in the report.