[helpneeded1920]

When property, plant, and equipment is purchased in a lump-sum price, does the cost to have these assets appriased get added to the total cost for the assets? For example, the lump-sum price is $200,000 and the appraisal cost is $10,000. Is the total cost to divide among the assets $200,000 or $210,000?

[morgaine300]

Adding an appraised value to a purchase price isn't logical. If you got a house appraised at $120,000 and you paid $115,000 for it, would it make sense to add those two together? If you bought two houses that were appraised for a total of $250,000 and you paid $240,000 for the two of them, it still wouldn't make any sense to add 250,000 and 240,000 together. What you paid is a portion of the value, not in addition to it.

This might be more obvious if you were looking at a more realistic appraisal. Why would someone pay $200,000 for something appraised at only $10,000?

Look at it from a more realistic point of view. Let's say these assets are appraised at $230,000. You aren't going to add them together. You're going to pro-rate the cost ($200,000) based on the value ($230,000). You're not adding them together.

Pro-rating means figuring out what proportion something is of a total, and applying that same proportion to something else. That is, if the 3 in total are valued at $230,000, you will want to know what proportion each one is of that total. If Asset A is valued at $23,000, you divide 23,000/230,000 and that gives you .10 or 10%. That's its proportion of the total.

You then apply that same proportion to the cost: $200,000 total cost x .10 = $20,000. So you apply $20,000 for the cost of Asset A.

[helpneeded1920]

You mis-understood my question. The FEE for the appraisal is $10,000 not the appraised value of the assets themselves. I know the rest about the ratio of fair value to the cost. This is within a business, not personal such as a home. Cost of property, plant, and equipment items are the purchase cost plus any fees or work done to get the assets ready for use. I am wondering if apraisal fees would go into this cost or not.

[rehmanvohra]

You mis-understood my question. The FEE for the appraisal is $10,000 not the appraised value of the assets themselves. I know the rest about the ratio of fair value to the cost. This is within a business, not personal such as a home. Cost of property, plant, and equipment items are the purchase cost plus any fees or work done to get the assets ready for use. I am wondering if apraisal fees would go into this cost or not.

Since the transaction is related to the assessment of the entire property, logically it should be added to the cost. Without incurring this fee you would not get the fair value of the asset.

[morgaine300]

Sorry, yes I did misunderstand you. :-)