What are basket purchases?
This is the acquisition of a number of assets as a group or a lump sum in a single purchase transaction. When an investor purchases a basket of assets, it means that in a single transaction, the investor is able to buy many assets as a group at a price under their combined market values. This basket of assets may be different securities, equipment, property, or facility purchased as a group.
The accountant that records this transaction records the costs of these assets individually in the fixed assets register by allocating the purchase price amongst the assets relative to their fair value, therefore the price quoted in basket purchase is below the price of the combined assets. The basket purchase method may also be applied to inventory.
How a basket purchase works
Prices must be assigned to individual assets acquired in a basket purchase, so as to correctly calculate the depreciation of each of the assets and also have an accurate business record. The estimated fair value of the purchased assets is often above the purchase price of the basket of assets. The basket purchase price can be allocated to individual items using the percentage of their estimated fair value.
Example of a basket purchase
If a business purchases a basket of assets containing property, plant, and equipment at a total price of 35,000 which has not been attributed to individual assets. Assuming the estimated fair value of the individual assets is Asset Value % Property 23,000 46% Plant 12,000 24% Equipment 15,000 30% Total 50,000 100% Then the basket purchase price will be allocated according to the percentage of individual estimated fair value as seen below: Asset Value Property 16,100 (46%) Plant 8,400 (24%) Equipment 10,500 (30%) Total 35,000 (100%).
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This blog was written by Charmaine Machingauta, an accounting intern at Thaddeus. She enjoys research and aspires to be an individual who uses her knowledge and skills to help the community and the world at large, thus she chose to work at Thaddeus.