The term lump sum purchase states to a contract that contains several assets are acquired for a single price paid for a bundle of assets. The assets must be noted distinctly as a fixed asset in the accounting records. Therefore, the lump sum purchase may include numerous asset classes, the buying price is assigned among the several attained assets created on their fair market values. it’s essential to assign the price paid to each asset so the obtaining can be precisely reproduced on the company’s balance sheet.
Lump Sum Purchase Calculator
For example, a buyer obtains property for $1,000,000. The property contains land with a market value of $250,000 and a building with a market value of $800,000. The lump-sum purchase price to these assets can be computed as follows:
Land: (($250,000/ ($250,000+$800,000)) x $1,000,000 = $238,095
Building: (($800,000/$250,000+$800,000) x $1,000,000 = $761,905
Why we use the Lump Sum Purchase Calculator?
This lump sum purchase calculator mostly used to allocate the total buying cost of a bundle of assets in part to the fair market value of each asset at the time of procurement.
Steps Require in Calculator
We follow the following steps to calculate Lump Sum Purchase value;
Costs to Assign: Enter the lump sum purchase amount.
Allocation: Enter an asset explanation and its reasonable market value at the date of purchase each asset. You can enter the maximum of up to 12 assets. If the assets are less than 12 assets in the lump sum purchase then leave the description cell empty and place zero in the fair market value cell. The lump sum purchase calculator computes the total fair market value for the obtaining and a distribution % for each asset based on its comparative fair market value.
Advantages of Lump-Sum Payments
A lump-sum payment is that you obtain all the money direct. It depends on the expanse or the amount, you may buy a product or anything other. You may have another huge purchase that you may not be able to buy that thing with the annual payments. Likewise, you can capitalize the money and possibly earn a higher rate of coming back than the actual rate of return related to the annual payments.
Disadvantages of Lump-Sum Payments
There are some disadvantages of Lump Sum Payments as well. If the money is invested violently, there is a possibility that you could get a lot of money, or you could drop it all. Also, you can unintentionally apply all a lump-sum.
Lump Sum Example
A Star Finance Company has entered into a contract to buy a call center from Company Moon Finance. As part of the contract, Company Star Finance allow to the land, office building, as well as the telecommunications apparatus. Company Allied has sold a lump sum purchase price of $30,000,000.
Through this example, let the assets are of three types: telecommunications apparatus, building, and land. Company Star Finance’s insurance evaluator indicated the land is valued at $2,000,000, the building at $34,000,000 and the telecommunications equipment at $4,000,000. With this information the following allocation was performed by Company Star Finance’s accounting department:
|Fair Market Value||% of Total||Allocation of Lump Sum|