QS 24-13B Joint cost allocation LO C3
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A
company purchases a 10,020 square foot commercial building for $325,000
and spends an additional $50,000 to divide the space into two separate
rental units and prepare it for rent. Unit A, which has the desirable
location on the corner and contains 3,340 square feet, will be rented
for $1.00 per square foot. Unit B contains 6,680 square feet and will be
rented for $0.75 per square foot.
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How much of the joint cost should be assigned to Unit B using the value basis of allocation?
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Explanation:
| Total joint cost = $325,000 + $50,000 = $375,000 |
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| Unit A market value (3,340 × $1.00) | $ | 3,340 |
| Unit B market value (6,680 × $0.75) | | 5,010 |
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| Total market value | $ | 8,350 |
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| Unit B joint cost = $375,000 × ($5,010 / $8,350) = $225,000 |
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