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.

• Limitations of the Balance Sheet

  • The three limitations to balance sheets are assets being recorded at historical cost, use of estimates, and the omission of valuable non-monetary assets.
  • There are three primary limitations to balance sheets, including the fact that they are recorded at historical cost, the use of estimates, and the omission of valuable things, such as intelligence.
  • Fixed assets are shown in the balance sheet at historical cost less depreciation up to date.
  • The historical cost will equal the carrying value only if there has been no change recorded in the value of the asset since acquisition.
  • Historical cost is criticized for its inaccuracy since it may not reflect current market valuation.

• 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.

• Fix an existing building first

  • It's relatively easy (and often more cost-effective) to refit an old building – even historical buildings – than to build new.
  • For example, the American National Audubon Society upgraded a 100-year-old 9,104 m2 building in 1992 at a cost roughly 27% below that of building from scratch (all costs were recouped within five years).

• Markup Pricing

  • So the relevant cost would be the cost that a buying company would incur if it made the product itself.
  • The first step involves calculation of the cost of production, and the second step is to determine the markup over costs.
  • The total cost has two components: total variable cost and total fixed cost.
  • A cost-plus price will equal average variable costs plus average fixed costs plus markup per unit.
  • The total average cost for a product is determined by dividing the total fixed costs (TFC) and total variable costs (TVC) by the quantity of the product produced, and then summing these together.