Acquisition cost concept applies to the obtainment of the fixed assets, so that an association might use for its commercial and business activities. Acquisition cost concept helps determine the actual expenses of an asset; it does not only include its purchase price but many other costs as well. Alternatively referred to as book value this cost is stated under the fixed assets section of the balance sheet. An assets acquisition cost might comprise many other costs other than the purchase price of an asset, any cost incurred to get an asset such as plant and machinery into a working state are considered a part of the asset’s acquisition cost.
Acquisition Cost Principles
If we take a further thorough look at the perception of acquisition cost we may ascertain that even costs incurred in obtaining the legal rights or ownership to an asset are included in its acquisition cost. Legal costs, commission and various fees can be some examples.
Acquisition costs also include those special carrying costs which occur particularly in case of machineries and plant. Any costs incurred to put that particular asset into an operational state will be included in its acquisition costs as well.
In case of complicated equipment even its installation costs; delivery cost, calibration costs, etc. are included in its acquisition costs too. In reaching the accurate acquisition costs of an asset some assumed costs may as well be accounted for. These costs would comprise of discounts received, depreciation, impairment cost, amortization etc.
In strict accounting terms if we please to calculate the acquisition cost, we may do it using this formulation.
AC = (Added direct expenses affecting to acquisition + buying price) - (Amortization + Impairment costs + depreciation + Taxes)
Arbitrating by the directly above analysis, we may conclude that an asset’s acquisition cost includes two primary components. The actual price paid for an asset i.e. the invoice price of the asset and also the additional direct costs that put an asset into a working state and gives the owner full ownership rights to it as well.
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