Kevin purchases equipment from Ray Company for a price of $5,000,000 and chooses Bob to do the...
Question:
Kevin purchases equipment from Ray Company for a price of $5,000,000 and chooses Bob to do the installation. Bob doesn't charge for the installation of equipment. The price of the installation service is estimated to have a fair value of $60,000.
Assuming the transaction to be a multiple-deliverable arrangement, compute the amount to be allocated to installation.
Installation Cost:
Installation Cost is the cost incurred and paid for by the tenant for the initial occupation of the property by the designs and specifications agreed by the landlord, as shown by paid receipts for the materials provided.
Answer and Explanation: 1
Computation of discount:
{eq}\begin{align*} {\rm{Amount}}\;{\rm{allocated}}\;{\rm{to}}\;{\rm{installation}} &= \frac{{{\rm{Purchase}}\;{\rm{price}}}}{{{\rm{Purchase}}\;{\rm{price}} + {\rm{Installment}}\;{\rm{charges}}}} \times {\rm{Installation}}\;{\rm{charges}}\\ &= \frac{{\$ 5,000,000}}{{\$ 5,000,000 + \$ 60,000}} \times \$ 60,000\\ &= \frac{{\$ 5,000,000}}{{\$ 5,060,000}} \times \$ 60,000\\ &= \$ 59,289 \end{align*} {/eq}
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What is Fair Value? - Definition, Principle, Measurement & Examples
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Chapter 8 / Lesson 6
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Explore the fair value principle. Learn the definition of fair value and how to calculate fair value. Examine scenarios such as finding the fair value of an asset.
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