历史成本

Historical cost Definition Ameasure of value used in aceounting in which the price of an asset on the balance sheet is based onits nominal or original cost when acquired by the company For example say the main headquarters ofa company which ineludes theland and building, was bought for $l100000 in 1925， and its expected market value today ks $20 milion The assetis still recorded on the balance sheetatS100.000. Historical cost Usage Historical cost method can confirm the net profit objeetivelv, Historical cost method can confirm the net profit reliably Historical cost method can suitably disclose the accounting information_ Advantages and disadvantages of historical cost THistorical cost accounts are straightforward to produce 2.Historical costaceounts do not record gains until they are realized 3.Historical costaceounts are still used in most accounting systems THistorical cost accounts give no indication of current values of the assets ofa business 2.Historical cost aceounts do not record the opportanity costs of the use of older assets， particularly property which may be recorded ata value based on costs ineurred many years ago 3.Historical cost aceounts do not reportaceount the lass of real value of nominal monetary items as a result of inflation or the gain in real value in nominal monetary items during defation. Historical cost method vs fair value method The advantages: Tit can help the information users to make decisions- 2 ican reflect the company's operating results more realistically- Some problems in practice: fair value is not so easy to confirm its caleulation is not as simple as the intrinsie value method; 2 High share option premiam, resulting a great decrease in the eurrent profit The diferences 1 compare with historical cost method，the fiir value method is less ofvolatile, Using Riirvalue accounting, the entity incurs aloss before enjoying futare subsequent benefits, Ho ever 和historical costaccounting the benefits io the firm comes first then loss thereafter, Historical cost accounting is easy t