visualcpa
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Joined: 21 Jul 2012
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| Posted: 21 Jul 2012 at 02:43 | IP Logged
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I have provided an example below of a problem and am not sure why inventory is not to be apportioned in a lump sum acquisition- is this because it is measured at Net Realisable Value, or is it related to the fact inventory is a current asset and thus not depreciated. - Your thoughts would be appreciated?
Example:
A food manufacturing company called Mr Noodles has decided to purchase a number of assets from another business. An independent valuation of the assets has been carried out and values them as follows: Sauce Unit - $17,000, Bottle Plant - $23,000, Inventory - $6,000 net realisable value , Warehouse and Land - $60,000. Mr Noodles has paid $94,400 for the assets. Show the general journal entries needed to record the purchase of the assets.
Solution:
Cost is not apportioned to inventory
Cost allocated to Sauce Unit = 17,000/100,000 x 88,400
= $15,028
Cost allocated to Bottle Plant = 23,000/100,000 *88,400
= $20,332
Cost allocated to Warehouse and Land = 60, 000/100,000 * 88,400
= $53,040
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Topic: lump sum acquisition of a group of assets
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