Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Home
  • Law, Transactions, & Risk Management
  • Business Transactions, Antitrust, & Securities Law

Basket Purchase - Explained

What is a Basket Purchase?

Written by Jason Gordon

Updated at April 15th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Basket Purchase?How does a Basket Purchase Work?Basket Purchase Allocation ExampleBasket Purchase of Similar Assets

What is a Basket Purchase?

A basket purchase is also called a lump sum acquisition, this is the purchase of many assets as a group. When an investor purchases a basket of assets, it means that in a single transaction, the investor is able to buy many assets as one group. This basket of purchase might also be different securities, equipment, property or facility purchased as a group. 

The price of purchase of this group of assets is often below their combined market values, the total purchase price is one that has not been assigned to individual assets. Therefore, in most cases, the price quoted in basket purchase is below the price of the combined assets.

Back To: BUSINESS LAW

How does a Basket Purchase Work?

Prices must be assigned to individual assets acquired in a basket purchase in order to correctly calculate the depreciation of each of the assess and also have an accurate business record. The estimated fair value of the assets is often above the total purchase price of the basket of assets. The basket purchase price can however be allocated to individual items using the percentage of their estimated fair market value. Purchase price can be assigned to individual assets acquired in a basket purchase using the example below;

Basket Purchase Allocation Example

For example, if a business purchases a basket of assets containing property, plant and equipment at a total price of 35,000 which has not been attributed to individual assets. Assuming the estimated fair value of the individual assets is; Asset Value % Property 23,000 46% Plant 12,000 24% Equipment 15,000 30% Total 50,000 100% Then the basket purchase price will be allocated according to the percentage of individual estimated fair value as seen below; Asset Value Property 16,100 (46%) Plant 8,400 (24%) Equipment 10,500 (30%) Total 35,000 (100%). It is however important to note that this example is for a basket of purchase containing different types of assets. An example of price allocation for a basket of purchase containing similar assets will be shown below.

Basket Purchase of Similar Assets

The basket purchase price allocation used in the above example is also applicable for a basket of purchase of similar assets. For instance, price allocation for a basket of purchase that contains similar equipment or machinery can be estimated as follows; If three equipment with an estimated fair market value of 40,000 are acquired as a basket of purchase with a total price of 15,000 the allocation of the basket price would appear as follows: Asset Value Equipment A 20,000 (50%) Equipment B 12,000 (30%) Equipment C 8,000 (20%) Total 40,000 (100%) Then, the price of individual equipment will be allocated based on the same percentage they have in their estimated fair market value. The allocation would then be; Equipment A 7,500 (50%) Equipment B 4,500 (30%) Equipment C 3,000 (20%) Total 15,000 (100%).

Back to: Business Transactions


basket purchase purchase allocation

Was this article helpful?

Yes
No

Related Articles

  • Classification of Issuers of Securities - Explained
  • Rule 144A Securities Regulation - Explained
  • Standard Equity Financing Documents - Explained
  • Straw Buyer - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand