Reference no: EM132972424

PURCHASE PRICE OF LAND, BUILDING AND FURNITURE

Prestige Property Ltd has acquired a two-storey office building on a large piece of land. The land also includes a fully established carpark and landscaping. The offices have recently been fitted out with new carpets, curtains and office furniture which are all included in the purchase price. 660 Financial accounting As the accountant of Prestige Property Ltd you have been asked to work out the cost of the office building, the land, and the furniture and fittings so that they can be entered into the accounts of the company.

You have gathered the following information (ignore GST).

• The advertised purchase price of the office building and land was $1.5 million. Prestige Property Ltd issued the owner of the land with 200 000 shares in Prestige Property Ltd that had been trading on the share market for $7.50 before the issue of the new shares but had subsequently fallen to $7 as a result of the share issue being made.
• A piece of vacant land next to the one purchased, and of equal size, recently sold for $800 000.
• The vendor of the office building has shown you the value of the furniture and fittings in their accounts as being $300 000.
• A builder has estimated that to build an office building similar to the one acquired would cost about $700 000.
• You want to maximise the cost of the furniture and fittings and the buildings as these are depreciable for taxation purposes.

Required

Problem (a) What is the fair value of the office buildings and the land?

Problem (b) How would you divide the purchase price between the land, buildings and office furniture?

Problem (c) Show the journal entry to record the acquisition of these assets in the accounts of Prestige Property Ltd.