Definition
The term lump-sum purchase identifies a agreement that involves one price covered a package, or category, of resources. Since the lumpsum purchase may involve several asset categories, it’s crucial to devote that the purchase price to each strength therefore that the purchase might be accurately represented on the business ‘s balance sheet.
Explanation
It’s quite normal for an organization to buy a set of resources, and maybe not explicitly recognize the purchase price for each item as a portion of their purchase agreement. The basic example are the purchase price of a structure. The purchaser could have paid price for your construction, property, and equipment in the arrangement.
The accountant’s challenge would be always to assign reserve worth to each asset form. This may be achieved with an evaluation of each thing ‘s fair market value and delegating a prorata share of their buy price to each. This info is elegant if owner provides the rest of the value of each asset to your client.
Example
Company A has entered into an agreement to obtain a call centre in Company XYZ. Included in this agreement, Company A is eligible to the property, office construction, in addition to the telecommunications equipment. Company A has negotiated a lump sum price cost of $30,000,000.
In this case we’ll assume that the resources are of 3 kinds: electronics, construction, and property. Company A’s insurance company signaled the property is valued at $2,000,000, the construction at $34,000,000 and the telecommunications equipment at $4,000,000. With this advice the next job was done by Company A’s accounting department:
| Fair Market Value | percent of Total | Allocation of Lump Sum | |
| Land | $2,000,000 | 5.0percent | $1,500,000 |
| Building | $34,000,000 | 85.0percent | $25,500,000 |
| Equipment | $4,000,000 | 10.0percent | $3,000,000 |
| Totals | $40,000,000 | 100.0percent | $30,000,000 |
