Asset Acquisition Cost

If you decide to record the debit offsetting the credit to Cash as an asset, the amount of the asset should be the sum of all the costs incurred in making the asset ready for its intended use. The cost of goods purchased for inventory includes freight and handling costs, as well as the invoice cost of the goods themselves. The cost of a building includes all the costs of constructing or buying the building, including demolition of an existing building on the site, legal and appraisal fees, permit and inspection fees, and interest on any funds tied up during the construction period--but interest stops being added to the cost when the building is ready for use. The cost of equipment includes the cost of installing the equipment.

However, you may decide not to follow this principle exactly. For example, you can treat the freight, postage, or other costs of handling goods that are purchased for inventory as expenses, rather than including these costs in the inventory account. You can do this if the effect is not material.

Assets are recorded at their total cost. For example, if the entity acquires a building for $100,000 but pays only $20,000 cash and takes out an $80,000 mortgage for the balance, the building is reported on the balance sheet at $100,000, not $20,000.