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ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements

Which of the following best describes the measurement basis of historical cost under the Conceptual Framework?

Historical cost records an asset at the costs incurred to acquire or create it at the transaction date, including transaction costs. It differs from fair value, value in use and current cost, which all reflect conditions at the reporting date or future expectations.

  1. AAssets are recorded at the value of the costs incurred to acquire or create them at the transaction dateCorrect
  2. BAssets are recorded at the amount that would be received to sell them in an orderly transaction at the reporting date
  3. CAssets are recorded at the present value of the future cash flows they are expected to generate
  4. DAssets are recorded at the cost to replace them with an equivalent asset at the reporting date

Explanation

Historical cost reflects the price of the transaction when the asset was acquired or created, including transaction costs. The second option describes fair value, the third value in use and the fourth current cost.

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