Acquisition cost definition
/What is the Acquisition Cost of an Asset?
Acquisition cost refers to the all-in cost to purchase an asset. The concept is used to accumulate costs into the book value of an asset in an organization’s accounting records. Acquisition costs include the following:
Shipping costs. This is the cost to move an asset from the seller’s location to the buyer’s location.
Sales taxes. This is any sales tax charged on an asset’s purchase price.
Customs fees. This is any fees charged by the customs service for goods obtained from another country.
Site preparation costs. This is the cost to prepare the site where an asset will be positioned, which may include a concrete pad, electrical connections, and plumbing connections.
Installation costs. This is the cost to set up an asset in its designated location, which includes hookup fees.
Testing costs. This is the cost to run tests on an asset to ensure that it is functioning properly.
When acquiring property, acquisition costs can include surveying, closing fees, and paying off liens. The acquisition costs of an asset are included in its capitalized cost; that is, they are not initially charged to expense. These costs, when aggregated, are considered to be the book value of an asset.
What is the Acquisition Cost of a Customer?
Acquisition cost can refer to the cost to acquire a new customer. These costs include marketing materials, commissions, discounts offered, and salesperson visits. When the cost to acquire a new customer is high, it makes sense to expend significant sums to ensure that the customer continues to buy from the company. This means producing higher-quality products, investing in better customer service, and regularly contacting the customer to see if there are any issues that can be resolved. The acquisition costs of a customer are charged to expense as incurred.
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FAQs
How Does Acquisition Cost Differ from Book Value?
Acquisition cost is the total amount paid to acquire an asset, including purchase price and all necessary costs to prepare it for use. Book value, on the other hand, is the asset’s acquisition cost minus accumulated depreciation or amortization. Over time, the book value decreases as the asset is depreciated, while the acquisition cost remains unchanged.
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