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ABC Company has purchased land and a warehouse for a lump-sum of $36,000,000 to be used in its manufacturing operations. The CFO and VP-Operations are
ABC Company has purchased land and a warehouse for a lump-sum of $36,000,000 to be used in its manufacturing operations. The CFO and VP-Operations are discussing the proper means for allocating the purchase price between the land and warehouse. The CFO is more concerned with cash flow (bill paying & flexibility) while the VP-Operation's emphasis is more on profitability (bonuses and pension contributions). As such, the CFO has proposed allocating 20% of the purchase price to the land while the VP-Operations has suggested 1/3rd of the cost be assigned to the land. Which choice would be the most appropriate according to GAAP and the IRC? O CFO: Land = $7,200,000/Warehouse $28,800,000 O VP-Operation: Land $12,000,000/Warehouse $24,000,000 OInsufficient information is given to make a decision None of the above
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