Original Cost

AAA

DEFINITION of 'Original Cost'

The total costs associated with the purchase of an asset. The original cost of an asset takes into consideration all of the costs that can be attributed to its purchase and to putting the asset to use. These costs can include such factors as the purchase price, commissions, transportation, appraisals, warranties and installation. Original cost can be used to value an asset type, including equipment, real estate and security instruments.

INVESTOPEDIA EXPLAINS 'Original Cost'

For example, the purchase price of a piece of equipment is $20,000. The purchase also involves $1,000 in fees, $700 in shipping and delivery costs, and $3,000 for installation and warranty. The original cost of this piece of equipment would be $20,000 + $1,000 + $700 + $3,000 = $24,700.


Determining an asset's original cost is important in calculating the asset's tax basis. The original cost of an asset encompasses more than the asset's purchase price, and the costs added together can reduce the potential taxable gain on the sale of the asset. The tax basis can be calculated by taking the original cost and subtracting the accumulated depreciation of the asset.

RELATED TERMS
  1. Acquisition Debt

    A financial obligation incurred through the construction, improvement ...
  2. Assessed Value

    The dollar value assigned to a property for purposes of measuring ...
  3. Expense

    1. The economic costs that a business incurs through its operations ...
  4. Cost Basis

    1. The original value of an asset for tax purposes (usually the ...
  5. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  6. Write-Off

    A reduction in the value of an asset or earnings by the amount ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Fundamental Analysis

    Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
  4. Options & Futures

    Owners Can Be Deal Killers In M&A

    A merger and acquisition advisor is often the best choice when selling a company.
  5. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  6. Professionals

    Acquire A Career In Mergers

    This exciting sector demands a lot from its advisors. Are you up for it?
  7. Budgeting

    Do I Need A Personal Accountant?

    You know you need to keep your personal finances better organized. Should you hire professional help, and if so what kind?
  8. Economics

    What Is The Labor Market Conundrum?

    We are facing a conundrum with investment implications: Why are wages still stagnant, when jobs are being created at the fastest pace since the late 90's?
  9. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  10. Economics

    What is a Promissory Note?

    A written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center