Unadjusted basis definition
/What is Unadjusted Basis in Accounting?
Unadjusted basis is the original purchase price of an asset. This basis includes the costs to bring the asset to its intended location and ensure that it is functioning properly. Unadjusted basis is used to calculate an asset’s subsequent depreciation. This concept does not include a deduction for salvage value, which would otherwise reduce the amount of depreciation expense. The unadjusted basis is frequently used with accelerated depreciation methods, since it accelerates the recognition of the largest possible amount of depreciation expense.
Example of Unadjusted Basis in Accounting
Pensive Dirt acquires a conveyor that will move gravel from a quarry to a storage area. The purchase cost of the conveyor is $400,000. Pensive also paid $100,000 to have the conveyor installed, plus $20,000 to have it adjusted and tested prior to putting it into daily use. This means that the firm’s unadjusted basis in the conveyor asset is $520,000.
What is Unadjusted Basis in Taxation?
For tad purposes, unadjusted basis is the original cost of acquiring an asset, including the purchase price and any associated expenses such as sales tax, shipping, and installation fees. This basis serves as the starting point for calculating gains or losses when the asset is eventually sold or disposed of. It does not include any subsequent adjustments, such as depreciation, amortization, or improvements. For example, if a business purchases a piece of equipment for $50,000, including installation costs, the unadjusted basis is $50,000. Over time, this amount may be adjusted for tax purposes, but the unadjusted basis remains the initial investment value used to track those changes.