Basket Purchase Allocation

A basket purchase or lump sum acquisition of long term assets refers to the purchase by a business of a group (basket) of assets, including property, plant and equipment, for a total purchase price which has not been attributed to the individual assets.

In order to correctly show the assets in the records of the business and to allow the correct depreciation calculations to be carried out, it is necessary to allocate the basket purchase price to the individual assets acquired.

Basket Purchase Allocation Example

Suppose a business acquires a group of assets comprising property, plant and equipment for 35,000. The estimated fair market value of the individual assets is as shown in the table below:

Basket Purchase – Estimated value
Asset Value %
Property 23,000 46%
Plant 12,000 24%
Equipment 15,000 30%
Total 50,000 100%

Clearly the total value of the individual assets (50,000) is greater than the basket purchase price paid (35,000).

The purchase price of 35,000 is now allocated in proportion to the value of the assets.

Basket Purchase – Cost allocation
Asset Value %
Property 46% 16,100
Plant 24% 8,400
Equipment 30% 10,500
Total 100% 35,000

Basket Purchase Allocation Journal Entry

Having allocated the purchase price of 35,000 to each of the individual assets, it can now be recorded with the following basket purchase journal entry.

Basket purchase accounting journal entry
Account Debit Credit
Property 16,100
Plant 8,400
Equipment 10,500
Cash 35,000
Total 35,000 35,000

Basket Purchase of Similar Assets

In the above example the basket purchase of assets related to items of property, plant, and equipment and the allocation divided the price into these three categories. The same technique can equally be applied to assets of a similar nature.

For example, the business might have purchased three manufacturing machines for 15,000 with fair values of 20,000, 12,000 and 8,000 receptively. Using the same techniques the allocation of the basket price would appear as follows:

Basket Purchase – Estimated value
Asset Value %
Machine A 20,000 50%
Machine B 12,000 30%
Machine C 8,000 20%
Total 40,000 100%
Basket purchase allocation
Asset % Value
Machine A 50% 7,500
Machine B 30% 4,500
Machine C 20% 8,000
Total 100% 15,000
Basket purchase journal entry
Account Debit Credit
Machine A 7,500
Machine B 4,500
Machine C 3,000
Cash 15,000
Total 15,000 15,000
Basket Purchase Allocation November 6th, 2016Team

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