Historical cost
Carrying something at what was originally paid. Verifiable, and capable of becoming badly stale on anything held for decades.
Where you will meet it
Historical cost appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Set out the elements that make up a balance sheet
“The measurement basis matters as much as the classification: much of the sheet is historical cost, so book equity is not market value, and internally generated intangibles are largely absent from it altogether.”
- Explain the bases used to measure assets and liabilities
“Historical cost records the original transaction amount and is verifiable but can become badly stale for long-held assets.”
Practise it
Practise historical cost until it is automatic: questions that explain every wrong option.
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