Historical Cost

Historical Cost – The Historical Cost of an asset refers to the original purchase price or acquisition value of that asset, as recorded at the time of the transaction. Under the Historical Cost Principle, assets, liabilities, and equity investments are documented in the financial statements based on their original cost, rather than their current market value. This principle ensures objectivity, reliability, and consistency in accounting records, as it is based on verifiable transaction data rather than fluctuating market estimates. While historical cost provides stability in financial reporting, it may not always reflect the true current market worth of an asset, especially during periods of inflation or market volatility.

Example: If a company purchased machinery for ₹10,00,000 five years ago, it continues to be recorded at ₹10,00,000 (minus depreciation), even if its market value has increased or decreased over time