Unadjusted basis – What is it, definition and concept

The unadjusted basis is an accounting value assigned to an asset at the time of its acquisition. It covers its price and other possible costs associated with the purchase.

In accounting terms, the unadjusted basis is the value that is assigned to a particular asset at the time it is purchased or acquired by an individual or business.

Usually, in accounting, this concept is used when referring to the underlying cost of buying a certain asset.

In other words, it is a measure that does not only take into account the acquisition price of the acquired good, but also includes possible liabilities that this entails (transport costs, installations, insurance contracting, etc.)

If, for example, the payment will be made in part with other assets offered by the buyer, their value would also be added to the unadjusted basis.

Another way to refer to this accounting term is as cost basis or initial cost. Formally, this initial value will not take into account the scrap value.

Importance of the unadjusted basis

The correct accounting calculation of unadjusted bases is vital for commercial companies when establishing depreciation schedules for their assets.

In that sense, the unadjusted basis translates into the starting point of the calculations when establishing a particular amortization or depreciation method.

In assets, such as machinery or operating technology, the unadjusted basis will therefore assume the value of the asset prior to its use.

Let us remember that, as assets such as those mentioned are used, they will suffer depreciation or amortization.

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As a defined accounting concept, the unadjusted basis has a series of features to take into account:

  • Additional magnitudes. As noted above, the amount shown on an unadjusted basis may include variables such as fees, taxes, or extra insurance, among other examples.
  • Measure instrument. In practice, it helps companies to know possible profits from the sale of certain assets.
  • Amortization and depreciation element. This base is one more element in the calculation of amortizations made by a company.
  • New assets. The most common in accounting terms is that this definition is used in new or premiere goods. That is, they have not been exploited in production processes.

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