Valuing the Cost of Long-Term Assets

Valuing The Cost of Long-term Assets
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14th June 2015.
The U.S essentially uses the historical cost concept in valuing the cost of long-term assets. This principle is based upon the time value of the asst. Here, there is a distinct maintenance of the initial book value of the asset at the time of its purchase. In other terms, the value of an asset is taken at the price at which it was purchased, without putting into consideration the depreciating or appreciating factor about the asset. It is only at the time when the asset is disposed, that the historical cost less the depreciation that the asset might have gone through (Scheid, 2010).
The Historical Cost Principle bases its argument on the fact that during valuation of an asset, it does not put into consideration the other factors that might have affected the disposal of the property. Among the most important and fundamental of assets; the market value. This principle, through the Generally Accepted Accounting Principles (GAAP), dictates that all the asset prices recorded on the balance sheet are done so at the historical cost. The main argument behind this is that GAAP places a lot of emphasis upon accuracy, reliability and dependability. Therefore, going with historical cost is more factual than basing the understanding of GAAP on the current market value, which always fluctuates depending on the prevailing conditions (Scheid, 2010).
This principle works well in long-term assets ,which are not in the processing of being disposed any time soon, but rather be used for the entirety ,or almost the entirety o the asset’s lifespan. Such assets include plants and property. The main undoing of this principle is that in the process of recognizing the historical cost as the most reliab...