Historical cost is the cost of an asset or liability at the time it was acquired or incurred. It is used as the basis for depreciation or amortization of the asset or liability over its useful life.

Formula for historical cost:

Historical cost = Cost when acquired or incurred

Example:

A company purchases a machine for $10,000. The historical cost of the machine is $10,000.

Key points:

• Historical cost is the cost of an asset or liability at the time it was acquired or incurred.
• It is used as the basis for depreciation or amortization over the asset or liability’s useful life.
• The historical cost can be found in the accounting records of a company.