In accounting terminology, historical cost describes the original cost of an asset at the time of purchase or payment as opposed to its market value (saleable value, replacement value or value in present or alternative use). Economists use opportunity costs to distinguish an opportunity forgone from the accounting cost or historical cost recorded in accounting records. Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes. ... In economics, business, and accounting, a cost is a price paid, or otherwise associated with, a commercial event or economic transaction. ... In business and accounting an asset is anything owned, whether in possession or by right to take possession, by a person or a group acting together, e. ... Opportunity cost is a term used in economics, to mean the cost of something in terms of an opportunity foregone (and the benefits that could be received from that opportunity), or the most valuable foregone alternative. ...

Historical cost principle

In accounting, the historical cost principle dictates that most assets and liabilities should be recorded at their historical cost. It is one of the 4 main principles in the U.S. generally accepted accounting principles (GAAP). For example, a tract of land which was purchased 50 years ago for $10,000 may be worth $1 million today but it will be recorded on the balance sheet at its historical cost: $10,000. Historical cost principle is used because of its reliability and freedom of bias when compared to fair market value principle. However, hictorical cost does not always provide relevant information. Thus there is an increasing presure to use fair market value. Today most securities and debts are recorded at market value. In contrast to US GAAP, under UK GAAP firms may revalue assets based on appraised market values. This can result in the recognition of unrealized gains as income. Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes. ... Generally accepted accounting principles (GAAP) are the accounting rules used to prepare financial statements for publicly traded companies and many private companies in the United States. ... In formal bookkeeping and accounting, a balance sheet is a statement of the financial value (or worth) of a business or other organisation (or person) at a particular date, usually at the end of its fiscal year, as distinct from a profit and loss statement (P&L, also known as... Generally accepted accounting principles (GAAP) are the accounting rules used to prepare financial statements for publicly traded companies and many private companies in the United States. ... The Generally Accepted Accounting Principles in the UK, or UK GAAP, are the overall body of regulation establishing how company accounts must be prepared in the United Kingdom. ...

Computation of historical cost for fixed assets.

Historical cost is the actual purchase price plus incidental costs incurred in making the fixed asset ready for use / commercial production. Commercial may mean: as a noun: a form of advertising, as in a television commercial as an adjective: referring to commerce or for-profit activities or trade (compare with non-profit organization) a breed of cattle, Commercial This is a disambiguation page — a navigational aid which lists other pages that...

• Land: Purchase price + legal fees + costs on leveling, grading, draining, clearing + mortgages, liens, encumbrances + additional permanent improvements (e.g. pavements, sewers, landscaping) - any proceeds from getting the land ready for its intended use(e.g. sale of cleared timber or materials from demolished buildings).

• Building: Purchase price + legal fees + and costs incurred in respect of major improvements / alterations / betterments.

• Machinery: Purchase price (net) + freight + shipping + loading & unloading + installation charges + commissioning (expenses on trial run and experimental production).
• Furniture & Fixtures: Purchase price (net) + installation charges.
• Vehicles: Purchase price + registration charges + cost incurred on accessories.

Land is sometimes used synonymously with country. ... Building is either the act of creating an object assembled from more than one element, or the object itself; see also construction. ... A machine is any mechanical or electrical device that transmits or modifies energy to perform or assist in the performance of tasks. ... Furniture is the collective term for the movable objects which support the human body (seating furniture and beds), provide storage, and hold objects on horizontal surfaces above the ground. ... In the law of real property, fixtures are anything that would otherwise be a chattel that have, by reason of incorporation or affixation, become permanently attached to the real property. ... Vehicles are non-living means of transport. ...

Special cases

• Discounts should be considered a reduction in the purchase price.
• If an asset has been received in consideration of issuing shares / bonds or notes payable, historical cost is recorded at fair market value of shares / bonds or notes payable. For example: mashinery is bought in return of 10,000 shares which are traded in the market for $12. Historical cost of the mashinery is $120,000.
• If a group of assest are purchased for a single lump sum, the cost paid is allocated among various assets on the basis of their fair market value.
• If an asset has been received in exchange for another non-monetary asset, historical cost is recorded as the fair market value of the asset given up or the asset acquired whichever is more evident.

See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ... In business and accounting an asset is anything owned, whether in possession or by right to take possession, by a person or a group acting together, e. ...

Costs after acquisition

In general, costs incurred to improve an asset should be capitalized (that is, added to the historical price), whereas expenditures that simply maintain a given level of services should be treated as ordinary expenses. In order for cost to be capitalize, one of these conditions must be met:

• the useful life of the asset must be increased
• the quality of units produced from the asset must be increased
• the quantity on units produced must be increased.