Definition:
Acquisition cost is the total cost incurred by a company to acquire an asset. This includes the purchase price, any applicable taxes, transportation costs, and any necessary installation or setup fees.
Key points about acquisition cost:
- Initial investment: It represents the initial investment made in an asset.
- Depreciation basis: The acquisition cost is used as the basis for calculating depreciation expense.
- Financial statements: Acquisition cost is reported on the balance sheet as the cost of the asset.
Example:
If a company purchases a new machine for $100,000, pays $5,000 in transportation costs, and spends $2,000 on installation, the total acquisition cost of the machine would be $107,000.
In essence, acquisition cost is the total amount a company pays to obtain an asset and is a crucial factor in determining its financial value.
