historical cost

Examples of historical cost in the following topics:

• Cost of Land

  • Land is recognized at its historical cost or purchase price, and can include any other related initial costs spent to put the land into use.
  • Land is recognized at its historical cost, or the cost paid to purchase the land, along with any other related initial costs spent to put the land into use.
  • If the land's market value increases over time, its value on the balance sheet remains at historical cost.
  • If the sale of land results in a gain, the additional cash or value received in excess of historical cost will increase net income for the period.
  • If the sale results in a loss and the business receives less than the land's historical cost, the loss will reduce net income for the period.

• Cost of Equipment

  • The cost of equipment is the item's purchase price, or historical cost, plus other initial costs related to acquisition and asset use.
  • The equipment's cost is calculated by adding the item's purchase price, or historical cost, to the other costs related to acquiring the asset.
  • Historical cost also includes delivery and installation of the asset, as well as the dismantling and removal of the asset when it is no longer in service.
  • Since accounting standards state that an asset should be carried at the net book value, equipment is listed on the balance sheet at its historical cost amount.
  • The cost of equipment includes all costs paid to put the asset into use.

• Cost of Buildings

  • The cost of a building is its original purchase price or historical cost and includes any other related initial costs.
  • The cost of a building is its original purchase price or historical cost and includes any other related initial costs spent to put it into use.
  • Buildings are listed at historical cost on the balance sheet as a long-term or non-current asset, since this type of asset is held for business use and is not easily converted into cash.
  • The cost of a building can include construction costs and other costs incurred to put the building into use.
  • Summarize how a company would calculate the cost of a building

• Cost of Improvements

  • The cost of an asset improvement is capitalized and added to the asset's historical cost on the balance sheet.
  • The cost of the improvement is capitalized and added to the asset's historical cost on the balance sheet.
  • If the capital improvement is financed, the interest cost associated with the improvement should not be capitalized as an addition to the asset's historical cost.
  • In 201X, the interest expense is $50; the interest expense is a period cost and reported on the income statement for 201X and not added to the asset's historical cost.
  • When the cost of a capital improvement is capitalized, the asset's historical cost increases and periodic depreciation expense will increase.

• Introduction to IFRS

  • Current Cost Accounting, under Physical Capital Maintenance at all levels of inflation and deflation under the Historical Cost paradigm as well as the Capital Maintenance in Units of Constant Purchasing Power paradigm
  • Financial capital maintenance in nominal monetary units, i.e., globally implemented Historical cost accounting during low inflation and deflation only under the traditional Historical Cost paradigm
  • Financial capital maintenance in units of constant purchasing power, i.e., Constant Item Purchasing Power Accounting – CIPPA – in terms of a Daily Consumer Price Index or daily rate at all levels of inflation and deflation under the Capital Maintenance in Units of Constant Purchasing Power paradigm and Constant Purchasing Power Accounting – CPPA – during hyperinflation under the Historical Cost paradigm.
  • Going concern: for the foreseeable future an entity will continue under the Historical Cost paradigm as well as under the Capital Maintenance in Units of Constant Purchasing Power paradigm
  • Stable measuring unit assumption: financial capital maintenance in nominal monetary units or traditional Historical cost accounting only under the traditional Historical Cost paradigm.

• Lower of Cost or Market

  • In lower of cost or market (LCM), inventory items are written down to market value when the market value is less than the cost of the items.
  • Ending inventory is normally stated at historical cost (what was paid to obtain it), but there are times when the original cost of the ending inventory is greater than the cost of replacement.
  • If the inventory has decreased in value below historical cost, then its carrying value is reduced and reported on the balance sheet.
  • The company then values each class at lower its cost or market amount.
  • Cost is primarily determined by either the average cost or the first-in, first-out method.

• Cost of Interest During Construction

  • The amount of interest cost incurred and/or paid during an asset's construction phase is part of an asset's cost on the balance sheet.
  • The cost of interest incurred and/or paid is included as part of the historical cost of the asset under construction.
  • This interest cost is recorded as interest expense and reported as a period cost on the income statement rather than the balance sheet.
  • Most of the interest paid during construction is part of an asset's cost.
  • Interest paid during delays in construction is excluded from the asset's cost.

• Depletion Base

  • The depletion base is the total cost of a natural resource and includes acquisition, exploration, development, and restoration costs.
  • The depletion base is the total cost of the natural resource.
  • Cost depletion is computed by (1) estimating the total quantity of mineral or other resources acquired and (2) assigning a proportionate amount of the total resource cost to the quantity extracted in the period.Cost Depletion FormulaAccording to the IRS Newswire, over 50 percent of oil and gas extraction businesses use cost depletion to figure their depletion expense.
  • The cost depletion formula for financial reporting purposes is the total investment cost of the property / (the quantity extracted during the period / the property's total estimated production).
  • When calculating cost depletion for tax purposes, multiply the formula by the property's adjusted basis or the property's historical cost subtracted by depletion expense for prior years.

• Special Considerations for Acquisition and Depletion of Natural Resources

  • (Accumulated depletion is similar to the accumulated depreciation used for plant assets. ) When analyzing the financial condition of companies owning natural resources, exercise caution because the historical costs reported for the natural resources may be only a small fraction of their current value.
  • To determine the total cost of the resource available, combine this depletion cost with other extraction, mining, or removal costs.
  • The cost of any portion not yet sold is part of the cost of inventory.
  • The company incurred costs of $200,000 to develop the site, including the cost of running power lines and building roads.
  • Total cost subject to depletion is the net cost assignable to the natural resource, plus the exploration and development costs.

• Accounting Methodologies: Amortized Cost, Fair Value, and Equity

  • Due to different durations of holding and other factors, companies use several accounting methodologies, including amortized cost, fair value, and equity.
  • Held to maturity securities are reported at amortized cost less impairment.
  • subjective factors such as risk characteristics, cost of and return on capital and individually perceived utility.
  • The ownership of less than 20% creates an investment position carried at historic book or fair market value (if available for sale or held for trading) in the investor's balance sheet.
  • Explain the difference between amortized cost, fair value and the equity method for reporting debt securities