Thursday, January 1, 2009

Asset Historical Cost Examples

In financial accounting and managerial accounting, all assets are recorded on the balance sheet and depreciated at their historical cost.

In accounting, a historical cost is considered the purchase price plus any additional costs necessary to obtain the asset, prepare it for use, and transport. Additional costs related to an asset include costs besides the purchase price include transportation costs, insurance for asset delivery and others.

Below is a list of additional costs related to the purchase of an asset that may be included in the historical cost of an asset:

  • Purchase of equipment will include the purchase price. Plus additional costs will include delivery costs, installation, set-up costs, and the cost of modifications.
  • Purchase of a building will include the purchase price. Additional cost will include title search, title transfer documents, legal fees, inspections costs, and real estate commissions.
  • Purchase of land will include the purchase price. Additional costs will include demolition of old buildings, title search, government fees and real estate fees.
The historical cost must be used in asset depreciation.

Example depreciation problem with historical costs.

1 comment:

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