Allocating Purchase Price for Land, Building, and Land Improvements
How to allocate the purchase price to the land, building, and land improvements?
Allocation of Purchase Price
The allocated purchase price to the land, building, and land improvements are as follows:
Land: $1,513,402
Building: $2,650,682
Land improvements: $518,917
Allocation Percentage Calculation
The first step in allocating the purchase price of $4,685,000 to the land, building, and land improvements is to determine the allocation percentages for each component. In this case, the market values for the land, building, and land improvements are given. We can calculate the allocation percentages as follows:
- Land allocation percentage: (Land market value / Total market value) * 100
- Building allocation percentage: (Building market value / Total market value) * 100
- Land improvements allocation percentage: (Land improvements market value / Total market value) * 100
After calculating the allocation percentages, we can then determine the allocated amounts for each component by multiplying the purchase price with the corresponding allocation percentage.
Calculation Steps
Given information:
- Purchase price = $4,685,000
- Land market value = $1,552,338
- Building market value = $2,720,196
- Land improvements market value = $533,466
First, we calculate the total market value:
Total market value: $1,552,338 + $2,720,196 + $533,466 = $4,805,000
Then, we determine the allocation percentages:
- Land allocation percentage: ($1,552,338 / $4,805,000) * 100 = 32.29%
- Building allocation percentage: ($2,720,196 / $4,805,000) * 100 = 56.63%
- Land improvements allocation percentage: ($533,466 / $4,805,000) * 100 = 11.08%
Next, we calculate the allocated amounts:
- Land allocation: $4,685,000 * (32.29% / 100) = $1,513,401.65 (rounded to the nearest dollar)
- Building allocation: $4,685,000 * (56.63% / 100) = $2,650,681.55 (rounded to the nearest dollar)
- Land improvements allocation: $4,685,000 * (11.08% / 100) = $518,916.80 (rounded to the nearest dollar)
Therefore, the final allocated purchase price is:
Land: $1,513,402
Building: $2,650,682
Land improvements: $518,917