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. Write-Off

    A reduction in the value of an asset or earnings by the amount ...
  3. Assessed Value

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

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

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

    A United States government agency that is responsible for the ...
Related Articles
  1. Mergers And Acquisitions: Understanding ...
    Fundamental Analysis

    Mergers And Acquisitions: Understanding ...

  2. Analyzing An Acquisition Announcement
    Investing Basics

    Analyzing An Acquisition Announcement

  3. Key Players In Mergers And Acquisitions
    Fundamental Analysis

    Key Players In Mergers And Acquisitions

  4. Owners Can Be Deal Killers In M&A
    Options & Futures

    Owners Can Be Deal Killers In M&A

comments powered by Disqus
Hot Definitions
  1. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  2. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  3. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  6. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
Trading Center