COST PRINCIPLE
The cost principle (or historical cost principle) dictates that companies record assets
at their cost. This is true not only at the time the asset is purchased, but also
over the time the asset is held. For example if Best Buy purchases land for $300,000,
the company initially reports it in its accounting records at $300,000. But what
does Best Buy do if, by the end of the next year, the fair value of the land has increased
to RS 500,000? Under the cost principle, it continues to report the land at
$400,000
The cost principle (or historical cost principle) dictates that companies record assets
at their cost. This is true not only at the time the asset is purchased, but also
over the time the asset is held. For example if Best Buy purchases land for $300,000,
the company initially reports it in its accounting records at $300,000. But what
does Best Buy do if, by the end of the next year, the fair value of the land has increased
to RS 500,000? Under the cost principle, it continues to report the land at
$400,000
No comments:
Post a Comment