Question

Cost-based measures (historical cost):

A. Reflects assets' market values at the time they are sold
B. Reflects assets' market values at the time of purchase
C. Reflects the current replacement cost of assets
D. Reflects the assets' expected future cash flows

Answer 1

Historical cost measures reflect the assets' market values at the time of purchase and do not account for market value changes over time.

Step-by-step explanation:

The question pertains to cost-based measures and specifically to historical cost. The correct answer to the question is that historical cost B. Reflects assets' market values at the time of purchase. This accounting method records the acquisition cost of an asset on the balance sheet at its original cost and does not adjust for changes in market value over time. Historical cost is associated with the concept of conservatism in accounting, providing a verifiable and objective measure of the resources used to carry on operations.