Historical Cost

[krishna3898]

Hi,
am new to this forum,just going through past post,please explain more about historical cost, what is the concept and benefit of historical,please how important in morden bussiness????
Thanks.
krishna

[Acid]

In historical cost accounting, historical cost is the original monetary value of an economic item.

Depreciation affects the carrying value of an asset on the balance sheet. The historical cost will equal the carrying value if there has been no change recorded in the value of the asset since acquisition. Improvements may be added to the cost basis of an asset.

Historical cost does not generally reflect current market valuation. Different accounting standards may require that the carrying value of an asset (or liability) be updated to the market price (mark-to-market valuation) or some other estimate of value that better approximates the real value. Accounting standards may also have different methods required or allowed (even for different types of balance sheet assets or liabilities) as to how the resultant change in value of an asset or liability is recorded, as a part of income or as a direct change to shareholders' equity.


Historical concept is very important and you should refer to GTG studytext for more information.


Best of luck!

Acid