Question

According to the historical cost principle, if an asset costs $50,000 when it was purchased, it would be reported at its ________ over the time the asset is held.

Answer 1

Cost

Step-by-step explanation:

The principle states that an asset would be recorded in the balance sheet at the value of its purchase price irrespective of the time it had been held; the principle encourages reliability in prices.

An example is when a company purchased a piece of land in 2000 for $3,000. After 10 years later, the company is still in business and on its balance sheet the value is recorded as $3,000 even though the current fair market value of the land is far greater than $3,000. This is a case of historical cost principle.