Basket Purchase

A basket purchase is a transaction in which multiple fixed assets are purchased together. If the cost can’t be assigned, it is allocated to the assets based on their appraised value.

One reason for basket purchase is when the price quoted in basket purchase is lower than the price charged for individual assets. In many cases, buildings are purchased together with land without agreeing on the cost of land and cost of building separately. Other instances involving basket purchase include acquisition of a whole division or manufacturing facility of one company by another.

The following steps are involved in accounting for a basket purchase:

  • Identify the consideration paid for the basket purchase.
  • Identify the assets being acquired and their quantities.
  • Assign the costs which can directly assigned to specific assets.
  • Find out the appraised values of whose cost is not specifically identified in the transaction
  • Allocated the remaining payment to the remaining assets in proportion of their appraised values.


Karakorum, Inc., a manufacturer of sports equipment, is in financial distress and has decided to sell off its golf division to Himalaya, Inc. for $40 million. The following table lists the division’s assets:

Assets Appraisal Value
Land $10 million
Buildings $5 million
Machinery $22 million
Office equipment $2 million
Furniture and fittings $1 million
Intangible assets $7 million

Himalaya, Inc. paid the fair value for intangible assets but due to the forced sale nature of the transaction, it was able to pay a lower price for other assets.

Because the cost paid for intangible asset is $7 million which is exactly equal to its fair value, this cost is directly assigned to intangible assets and the remaining purchase consideration paid is allocated to the remaining assets in proportion of their appraisal value.

The following table shows the assignment and allocation of cost:

USD in million Fair Value Direct Allocation Percentage Cost Allocated
Land 10 25% 8.25
Buildings 5 13% 4.125
Machinery 22 55% 18.15
Office equipment 2 5% 1.65
Furniture and fittings 1 3% 0.825
Sub-total 40 33 100% 33
Intangible assets 7 7 7
Total 47 40 40

The following journal entry needs to be passed to record the basket purchase:

Land $8.25 million
Buildings 4.125 million
Machinery 18.15 million
Office equipment 1.65 million
Furniture and fittings 0.825 million
Intangible assets 7 million
Cash $40 million

Written by Obaidullah Jan, ACA, CFA and last modified on