Long term assets are recorded at their historical costs. The historical costs includes the purchase price plus any costs necessary to get the asset in the location and condition for its intended use.
For example the cost of a building will include:
- Purchase price
- Sales taxes
- Title search and transfer document costs
- Realtors and attorney’s fees
- Remodeling costs
Land costs includes:
- Purchase price
- Sales taxes
- Title search and transfer document costs
- Realtors attorney’s fees
- Costs for removal of old buildings
- Grading costs
Equipment costs includes:
- Purchase price (less discounts)
- Sales taxes
- Delivery costs
- Installation costs
- Costs to adapt to intended use.
The costs of an asset does not include payments for fines and damages that could be avoided.
Example:
Uncle Joe purchased a new equipment and paid cash. The seller gave Uncle Joe a 3% discount for cash payment. The original price of the equipment before the discount was $100,000. The equipment was delivered FOB shipping point at a cost of $500. In order to learn how to operate the new equipment, Uncle Joe had to pay the vendor $1,000 for training. What is the cost of the equipment?
| Original price | 100,000 |
| Less discount | (3,000) |
| Shipping cost | 500 |
| Training costs | I,000 |
| Total equipment costs | 98,500 |