Definition
The term acquisition cost refers to the total of all the expenses associated with placing an asset into service. Acquisition cost is a managerial concept believed to more accurately reflect the total resources related to the purchase of an asset.
Explanation
Also referred to as the total cost of acquisition (TCA), acquisition cost is a managerial accounting concept that allows analysts to understand all of the resources associated with placing an asset into service. Acquisition cost would include both the factors that lower costs as well as those that increase it. For example, a company might acquire an asset for $1 million, but if the invoice is paid in less than thirty days, a discount of 5% might apply. The total cost of acquisition includes both incentives as well as discounts.
In the same way, TCA includes additional costs too. For example, expert services may be required to configure or tune a machine so it operates properly. It will also include any costs associated with shipping the asset to the company location, preparing the location to accommodate the asset, as well as the costs associated with installing it.
Related Terms
The financial accounting term additions to property, plant, and equipment refers to one type of cost subsequent to acquisition. Additions are defined as an increase or expansion of these assets and the cost is typically capitalized.
Moneyzine EditorJanuary 4th, 2024
The financial accounting term improvements and replacements refers to a category of cost subsequent to acquisition. A replacement occurs when a similar asset is substituted for the original asset, while an improvement involves the substitution for a more advanced asset.Moneyzine EditorSeptember 20th, 2023- The financial accounting term reinstallation and rearrangement refers to a category of cost subsequent to acquisition. A rearrangement or reinstallation occurs when equipment is moved from one location and installed in another. This is typically performed to increase production at the receiving location.Moneyzine EditorSeptember 21st, 2023
- The financial accounting term repairs to property, plant, and equipment refers to a category of cost subsequent to acquisition. Repairs are typically broken down into two subcategories: ordinary and major. Ordinary repairs are typically expensed, while major repairs may be capitalized if certain criteria are met.Moneyzine EditorSeptember 21st, 2023
The financial accounting term disposition of property, plant, and equipment refers to the disposal of the company's assets. This can include the sale, exchange, abandonment, and involuntary termination of the asset's service. Disposition of plant typically results in a gain or loss appearing on the company's income statement.Moneyzine EditorJanuary 16th, 2024- The financial accounting term property, plant, and equipment is used to describe assets of a long lasting nature, which are used in the normal operation of the company. The most common types of property, plant, and equipment are land, buildings, and machinery.Moneyzine EditorSeptember 21st, 2023
The financial accounting term costs subsequent to acquisition refers to additional expenditures associated with property, plant and equipment. In general, companies make four types of investments in existing assets: additions to plant, improvements, reinstallations and repairs.Moneyzine EditorJanuary 12th, 2024
