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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Mehta Traders buys a delivery van for ₹6,00,000 and records it in the books at that price, even though a dealer later offers to buy it for ₹6,50,000. Which accounting idea mainly explains why the van continues to be shown at ₹6,00,000 (less depreciation) rather than ₹6,50,000?

The van stays at ₹6,00,000 because of the historical cost concept. Assets are recorded at the price actually paid and later market offers or unrealised gains are ignored. Depreciation is deducted from cost, so the dealer's higher offer does not change the book value.

  1. AHistorical cost conceptCorrect
  2. BMatching concept
  3. CDual aspect concept
  4. DAccounting period concept

Explanation

Assets are recorded at the actual cost paid to acquire them, and unrealised increases in market value are not recognised. The van is therefore carried at ₹6,00,000 less depreciation. Matching relates revenues to expenses, not to asset valuation.

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