Lump-sum purchase definition

What is a Lump-Sum Purchase?

A lump-sum purchase occurs when several assets are acquired for a single price. Each of the assets must be recorded separately as a fixed asset in the accounting records ; to do so, the purchase price is allocated among the various acquired assets based on their fair market values . This situation most commonly arises when property is purchased and the purchase price includes both land and structures.

Example of a Lump-Sum Purchase

A buyer acquires property for $1,000,000. The property includes land with a market value of $250,000 and a building with a market value of $800,000. The apportionment of the lump-sum purchase price to these assets is calculated 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