What is the Historical Cost Principle and what does it require regarding the cost of plant assets?
Understand the Problem
The question is discussing the Historical Cost Principle, which requires companies to record plant assets at their acquisition costs. It also outlines what constitutes cost in the context of plant assets.
Answer
Records plant assets at original cost, including acquisition and preparation expenses.
The Historical Cost Principle requires recording plant assets at their original cost, which includes all necessary expenditures to acquire and prepare the asset for use.
Answer for screen readers
The Historical Cost Principle requires recording plant assets at their original cost, which includes all necessary expenditures to acquire and prepare the asset for use.
More Information
The principle ensures assets are not overstated on financial statements and maintains objectivity and reliability in accounting.
Tips
A common mistake is excluding necessary preparation costs from the asset's recorded cost.
Sources
- Historical Cost: Definition, Principle, and How It Works - Investopedia - investopedia.com
- Historical Cost Principle: How It Works & Why It Matters - NetSuite - netsuite.com
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