Why Assets Are Recorded At Historical Cost
Assets are recorded at historical cost o n b ala nce s heet b ecause to show that cost at which, firstly, assets are acquired b y the b usi ness as a historical record a nd to compare t his cost with fair market value a nd b ook value of assets over a period of time. It is also the requireme nt of Cost Principle w h ic h states t hat assets should b e recorded i n itially at historical costs at which these are acquired b y b usi ness. With the passage of time, the value of assets is depreciated or appreciated, b ut historical cost is used to show the origi nal cost at w hich these are acquired i n order to make comparison it wit h fair market value a nd b ook value. However, this cost pri nciple lacks in providing updated value of assets prevailing in t he market a nd as a result fails to convince t he i nvestors, shareholders and ot her users of fi nancial statements ab out realistic a nd up to date information. For example, if t he value of b uildi ng is ...