Question

Which of the following are true or false?

(a) The historical cost does not reflect true value of the asset
(b) Accounting is a historical record of the transactions of a business entity.

• A. Both (a) and (b) are true
• B. (a) is true, but (b) is false
• C. (a) is false, but (b) is true
• D. Both (a) and (b) are false

Answer 1

Answer: (A)

Both (a) and (b) are true

A historical cost is the measure of the value used in accounting in which the price of an asset in the balance sheet is based on its original cost when acquired by the company. It is one of the four basic accounting principles. It does not reflect true value of the asset. As accounting consists of recording the original value when the asset is purchased, it is a historical record of the transactions of a business entity.