Question

West, Inc., acquired 60% of East Co.’s outstanding common stock. West paid $800,000 to acquire the stock. West plans to relocate East’s company headquarters, which is expected to cost between $100,000 and $300,000. The present value of the probability-adjusted relocation cost is $240,000. What is West’s acquisition cost?

Answer 1

Answer: $800,000

Explanation: Acquisition cost is usually related to the amount required to gain ownership of a property or asset. It is usually regarded as the amount paid to a seller in other for such individual to sanction the sale if an asset. In the scenario above, the amount received by East Co. is $800,000, hence prompting East Co. to surrender 60% of it's outstanding common stock. Relocation cost will not be calculated as part of the acquisition cost, although it will be calculated as part of the expenses incurred.