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Historical Cost: assets are generally carried on the balance sheet at their acquisition cost and liabilities are usually carried at the prices at which they were incurred. This was sufficient for many years. How evere in recent years accountants as well as investors who use financial statements have questioned this approach, asking if accuracy would be better achieved if selected assets and liabilities were valued under a fair market model that would reflect current valuations.

Historical values are not relevant to decision making

Current value: is more relevant for decision making

• Cash flow defines the ultimate success or failure of a business venture.
• Operations need cash flow to function.
• Most decisions are made on the basis of the cash flows.


Historical cost attribute is currently emphasized when accounting for assets. The reliability and verifiability of historical cost are considered relevant when choosing a device for measuring an asset.
The valuation of assets has come under increasing question in recent years.
historical cost describes the original cost of an asset at the time of purchase or payment as opposed to its market value (saleable value, replacement value or value in present or alternative use). Carrying value distinguishes between the historical cost and the amount recorded on the balance sheet (usually the historical cost less any changes, such as depreciation). Economists use opportunity costs to distinguish an opportunity forgone from the accounting cost or historical cost recorded in accounting records.
Historical Cost

Historical cost is the amount actually paid for the asset, as evidenced by checks and other documents. This is ordinarily adjusted over time for amortization, such as depreciation. Historical cost is the valuation measurement generally used for plant and equipment.
Historical costs