The principle that states that assets acquired by the business should be recorded at their actual price is the:
A) stable monetary unit assumption
B) objectivity assumption
C) cost assumption
D) reliability assumption

Question

Quizplus · Accepted Answer

The cost assumption, also known as historical cost principle, states that assets should be recorded at their actual cost, which includes not only the purchase price but also any incidental costs necessary to bring the asset to its intended location and condition for use. This principle enhances the reliability and objectivity of financial statements by avoiding subjective estimates that may be biased or manipulated to serve specific interests. The stable monetary unit assumption assumes that the currency used to record transactions remains stable in value over time, which may not always be the case, especially in inflationary environments. The objectivity assumption assumes that financial information is verifiable and unbiased, which may be compromised by managerial judgment and estimates. The reliability assumption requires that financial information is accurate, complete, and free from material errors or omissions, which is supported by the use of actual costs as a verifiable and objective basis for asset recognition.

The Principle That States That Assets Acquired by the Business