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Acquisition Cost
The acquisition cost determines at what cost an asset will be carried in the company's statement of financial position.
Acquisition Cost Includes:
- Purchase price of asset
- Including any non-refundable taxes and duties. (Sales taxes are not included)
- All necessary expenditures needed to legally and functionally use the assets
- Delivery and installation cost
- Initial improvements or repairs
- Closing fees (notary, brokerage, other)
- Interest incurred during construction
- Estimate of future obligations related to the asset
- Dismantling
- Restoring
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Example: Acquisition Cost
Wize Corp. purchased a used machine to use in its operations by signing a 5-year, $500,000 note at 5% interest. Closing fees for the transactions totalled $5,000 which included (notary fees and brokerage). The purchase was also subject to 10% sales tax which was paid in cash at the time of purchase. Wize Corp. paid $10,000 to a shipping company to delivery and install the machine at the company's facility, and spent another $6,000 repairing the machine's defects prior to putting it in use.
Practice: Acquisition Cost
ABC Corp. is acquiring a new building at a cost of $600,000 cash. The company must pay a property transfer tax of $6,000 and commissions of $12,000 to the real estate broker that found the property. The building needed a new roof before it could be used, costing the company $25,000. Upon completion of the roof, ABC Corp. invited several of its business associates and local politicians to a ribbon cutting ceremony, the cost of the event amounted to $15,000.
Determine the acquisition cost of the building.