Assigning Values to Land and New Warehouse

What value should be assigned to the tract of land?

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What value should be assigned to the new warehouse?

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Answer:

(a) The value assigned to the tract of land should be the purchase price of $350,000. This represents the actual amount paid by Omar Corporation to acquire the land. (b) The value assigned to the new warehouse should be the total cost of its construction, which is $600,000.

(a) The value assigned to the tract of land should be the purchase price of $350,000. This amount represents the cost incurred by Omar Corporation to acquire the land. When assigning a value to an asset, it is important to consider the actual amount paid for its acquisition. In this case, the purchase price of $350,000 reflects the agreed market value between the buyer and the seller.

(b) The value assigned to the new warehouse should be the total cost of its construction, which is $600,000. This value includes expenses such as demolition costs, construction costs, legal fees, architect fees, and other associated costs. When determining the value of a newly constructed asset, it is common practice to use the total cost incurred in its construction as the basis for assigning a value.

Therefore, the values assigned to the tract of land and the new warehouse are $350,000 and $600,000, respectively. These values are based on the actual costs incurred in acquiring the land and constructing the new warehouse.