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Basket (Lump-sum) Purchases definitions

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  • Lump Sum Purchase
    Acquisition of multiple fixed assets together for a single price, requiring allocation of cost to each asset.
  • Basket Purchase
    Transaction involving the purchase of several assets at once, often at a discount from their combined fair values.
  • Fixed Asset
    Long-term tangible resource such as land or buildings, used in business operations and subject to cost allocation.
  • Cost Allocation
    Process of distributing the total purchase price among individual assets based on their relative values.
  • Land
    Non-depreciable asset acquired in a lump sum purchase, requiring separate cost assignment from buildings.
  • Building
    Depreciable asset often acquired with land, necessitating accurate cost assignment for proper depreciation.
  • Depreciation
    Systematic allocation of the cost of a tangible asset, such as a building, over its useful life.
  • Relative Sales Value Method
    Three-step approach for assigning purchase price to assets based on their proportionate fair market values.
  • Fair Market Value
    Estimated price at which an asset would change hands between willing parties in an open market.
  • Percentage Allocation
    Calculation of each asset's share of the total fair market value to determine its portion of the purchase price.
  • Journal Entry
    Accounting record that documents the debits and credits involved in a lump sum asset purchase.
  • Discount
    Reduction from the combined fair market values of assets, often received when purchasing multiple assets together.
  • Initial Cost
    Amount assigned to an asset on the books after applying the relative sales value method to a lump sum purchase.
  • Cash
    Asset account credited in the journal entry to reflect payment made for a basket purchase.
  • Note Payable
    Liability that may be used as payment in a lump sum purchase instead of cash, representing a promise to pay in the future.