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Simple English definitions for legal terms
historical cost
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A quick definition of historical cost:
Historical cost: The amount of money that was paid for something when it was first bought or acquired. This is also called the acquisition cost or original cost. It is important to know the historical cost of an asset because it helps to determine its value over time.
A more thorough explanation:
Historical cost refers to the original cost of an asset when it was first acquired. It is also known as acquisition cost or original cost. This cost includes the amount paid for the asset, as well as any additional expenses incurred to bring it into use.
- When a company buys a piece of equipment for $10,000, the historical cost of the equipment is $10,000.
- If a company buys a building for $500,000 and spends an additional $50,000 on renovations before using it, the historical cost of the building is $550,000.
These examples illustrate how historical cost is the original cost of an asset, including any additional expenses incurred to bring it into use. It is important to note that historical cost does not reflect the current market value of an asset, as it only considers the cost at the time of acquisition.