Question

The principle that states that assets acquired by the business should be recorded at their actual price is the:

a) Objectivity assumption
b) Stable monetary unit assumption
c) Cost assumption
d) Reliability assumption

Answer 1

The principle that states that assets acquired by the business should be recorded at their actual price is the cost assumption.

Step-by-step explanation:

The correct answer is c) Cost assumption. The cost assumption, also known as the historical cost principle, states that assets acquired by a business should be recorded at their actual price. This means that the initial cost of acquiring an asset, such as the purchase price or production cost, is used as the basis for recording the asset on the balance sheet.For example, if a business purchases a vehicle for $20,000, the cost assumption principle requires the business to record the vehicle on its balance sheet at the actual purchase price of $20,000.The cost assumption is important because it provides reliability and objectivity to financial statements. By using actual cost as the basis for recording assets, it avoids subjective valuations and ensures that information is presented accurately.