Basket purchase definition
/What is a Basket Purchase?
A basket purchase is the acquisition of a number of assets as a group, in a single purchase transaction. A basket purchase usually arises when the buyer has the opportunity to acquire a number of assets at a price below their combined market values.
Accounting for a Basket Purchase
When multiple assets are acquired in a lump sum, the accountant typically records the cost of the assets individually in the fixed assets register. To do so, you should allocate the purchase price amongst the assets based on their relative fair values.
The fair value information used to derive the breakdown of a basket purchase can come from an appraiser, or from asset purchase or sale information taken from a market for the same or similar assets. Whatever method is used, be sure to document it, in case the transaction is reviewed by auditors. If the auditors do not agree with your cost allocation, they may force you to revise it, which may alter the subsequent depreciation amounts charged against these assets.
The basket purchase concept may also be applied to inventory items.
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Example of a Basket Purchase
Apple Company buys a group of assets from Orange Company for $100,000. The assets have the following fair values:
Machine A = $50,000 (42% of total)
Machine B = $40,000 (33% of total)
Machine C = $30,000 (25% of total)
The proportional allocation by Apple Company of the $100,000 purchase price to the assets results in the recognition of the following costs in the fixed asset register:
Machine A = $42,000 (42% of $100,000 purchase price)
Machine B = $33,000 (33% of $100,000 purchase price)
Machine C = $25,000 (25% of $100,000 purchase price)
Terms Similar to Basket Purchase
A basket purchase is also known as a lump-sum purchase.