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Historical Cost

  • All fixed assets are recorded at the actual purchase price or acquisition price by following the principle of historical cost.

Example: Manoharlal purchased a machinery by paying ₹ 8,00,000 when the actual price of the machinery is ₹ 10,00,000. Here, the historical cost is only ₹ 8,00,000 which is the price paid for acquiring the machine.

  • Liabilities are recorded at an amount payable of proceeds received in exchange of the obligation.

Example: When Mr. Manoharlal a businessman, takes ₹ 1,00,000 loan from a bank @ 12% interest p.a., it is to be recorded at the amount of proceeds received in exchange for the obligation being repayment of loan and payment of interest at an agreed rate. Proceeds received are ₹ 1,00,000 - it is historical cost of the transactions.

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