Total Asset Cost - Financial Accounting

All right, so let's talk about this super important concept of what's called total asset cost or what I call TAC, TAC

You really can't do anything else in this chapter without understanding the TAC, or again, the total asset cost

And more importantly, if you need to, how to calculate the TAC. Everything in this chapter really revolves around that

So let's talk about what the TAC is. Total asset cost is the plant assets are recorded at cost when they're required

Remember that that's the measurement principle that says that we put it at cost

The cost, this is the cost of the plant asset and it includes all normal and reasonable expenditures necessary to get the asset in place and ready for its intended purpose

So it's not only the invoice cost, it's much like what we talked about with the inventory

It's not only invoice costs, but there's other things that go in there. And you've got to be able to be able to identify what is being used to calculate attack and what is not

So the best way I can tell you is, let's do an example together. And I know it looks a little lengthy but let work through it So my company purchased a new company van for They received a discount for 3 for paying in cash

The van was delivered under the terms F-O-B shipping point. Yes, we've got to go back to that

Hopefully you remember what that means. For $2,000, my company paid $4,500 for the van to be outfitted with a mechanical lift

and paid $750 for a one-time training course for their employee to learn how to use the lift

due to the purchase of the new van, my company's insurance went up by $150 per year

Calculate the tack. So the best thing I can tell you to do this is just look at it as a list

Let's go down the list and figure out what's happening here. So the first thing is we have this invoice cost, what it cost us

So the purchase of the new company van was $75,000. Naturally, that's our starting place

So I'm going to start there with invoice costs, $75,000. Okay. Now let's go to the next one

The next part says that we received a 3% cash. discount do we include that into the tack yes because that is part of me getting into my facility and ready for its intended purpose So 3 of 75 That going to give me 220 excuse me 2 All right on to the next one The delivery the van was delivered

FOB shipping point for $2,000. Is shipping point my responsibility? Well, FOB shipping point is

the buyer's responsibility. So yes, it is my responsibility. So I did pay that $2,000. And that's what's

necessary to get it to my facility. So yes, I'm going to include that $2,000. So I'll say delivery

cost 2000. Next, we have the $4,500 to get the van outfitted with a mechanical lift. Do I include

that? Yes, because that is getting it ready for its intended purpose. Naturally, I'm going

to need this lift for something from a business, so I'm going to include that into the cost

of the van. So I'm going to say customization cost is going to be $4,500. Now, what about this $750

for the one-time training course for my employee to learn how to use that lift? Am I going to include

that yes because again that getting that lift ready so I would again use that training cost and put that into the cost of my total asset or my van And the last one is this insurance My insurance went up by per year Do I include that

in my asset cost? No. Because that's something I already had in place. I was still going to have

insurance regardless. All this does make it go up. And a good way to know that we're not going to use

this is because this is an annual amount. We typically don't add annual amounts here because we don't know

what the actual cost is. We're actually going to expense this year over year

So we're not going to include this into the tack. So if I add up these, that's going to give me a tack or total asset cost of, come on now

There it is, $80,000. So that's what I'm actually going to put in my books for my van

So I'll say on whatever date that I bought this, and let's say equipment, which is the van

for $80,000, and I paid cash for it. So I'm going to credit cash for $80,000

That is how you calculate the total asset. cost. This is a super important concept that you're going to need to know in order to do the next steps of this chapter

Appreciate it