When several long-term assets are purchased in a single transaction, the purchase price is allocated among the assets based on their relative fair values.

Question

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This is known as the allocation of purchase price or the purchase price allocation method. It is used to determine the appropriate amounts to be assigned to each asset in the transaction. This allocation is based on the fair value of each asset, which is the price that would be received for the asset in an arm's-length transaction between knowledgeable, willing parties.

When Several Long-Term Assets Are Purchased in a Single Transaction