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. Cost Basis

    1. The original value of an asset for tax purposes (usually the ...
  4. Expense

    1. The economic costs that a business incurs through its operations ...
  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 FAQS
  1. No results found.
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. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  8. Personal Finance

    What Drives Consumer Demand for Tesla?

    Tesla did not invent the electric vehicle market, but it has brought to it elements of luxury and elite status. But what really drives demand for Teslas?
  9. Investing

    Understanding Cost Accounting

    Cost accounting is the method of financially allocating expenses to goods that are manufactured for resale. Cost accounting is also referred to as managerial accounting, because managers use ...
  10. Investing

    What are Prepaid Expenses?

    A prepaid expense is an asset on the balance sheet. Due to accounting principles, expenses are often accrued on the balance sheet and expensed in a later period.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center