historical cost

Definitions (2)
Related Terms
1. Accounting: Original cost of an asset, as it is carried on the books of a firm. In the UK and Netherlands, certain modifications to the historical cost are permitted, whereas in the US and Germany such practices are forbidden.
2. Cost accounting: Sum of money that was (or is assumed to have been) spent, on a purchase or an operation of a firm. Historical cost does not take the effects of inflation into account, and ignores the replacement cost of the resources consumed. Although (in inflationary times) historical costing can lead to inadequate allocation for replacement of assets, it is a very useful concept by virtue of being based on fact.
The objective of its computation is to spread the actual amount spent over the units of production in a logical manner.

Email Print Embed

Mentioned in These Terms