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1 year ago

What is a practical example of historical costs as a limitation for financial statements

Law

1 answer:

Vika [28.1K]1 year ago

6 0

A practical example of historical costs as a limitation for financial statements are:

fails to disclose the current worth of the enterprise
incomparable items in Financial Statements
its difficult to replace Fixed Assets
leads to inaccurate determination of profit etc.

<h3>What are significance of historical costs?</h3>

Basically, a historical cost refers to the measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the company. This costing method is used for fixed assets in the United States under generally accepted accounting principles (GAAP)

In United States, the principle of historical cost is a basic accounting principle under U.S. GAAP where most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time. However, not every assets are held at historical cost. For instance, a marketable securities are recorded at their fair market value on the balance sheet and impaired intangible assets are written down from historical cost to their fair market value.

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