Proper Allocation of Costs for Land and Warehouse Acquisition

Understanding Accounting Records

Accounting records are a vital part of any business organization as they provide a detailed account of all financial transactions. These records involve the systematic process of recording, classifying, and summarizing financial information to ensure accurate financial reporting.

Allocation of Costs for Land and Warehouse Acquisition

When a land and a warehouse were acquired for $880,000, it's important to properly allocate the cost between the land and the warehouse based on their estimated values from an appraisal.

The estimated values from the appraisal are $450,000 for the land and $700,000 for the warehouse. To determine the amounts that should be recorded in the accounting records for the land and warehouse, we can use the following calculations:

Land: $880,000 x ($450,000 / ($450,000 + $700,000)) = $880,000 x 0.3913 = $344,104

Warehouse: $880,000 x ($700,000 / ($450,000 + $700,000)) = $880,000 x 0.6087 = $535,896

Therefore, the accounting records should show the following values;

Land: $344,104

Warehouse: $535,896

Do accounting records play a critical role in business decision-making?

Yes, accounting records play a crucial role in business decision-making. These records provide an accurate overview of the financial health of a company, helping management make informed decisions regarding investments, budgeting, and strategic planning. Moreover, accounting records are essential for compliance with financial regulations and tax requirements.