Allocating Purchase Price for Land, Building, and Land Improvements

02 Aug 2023

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: