What is 'Original Cost'
Original cost is the total cost 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.
BREAKING DOWN '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.