Question

At acquisition date, the net asset of the acquired subsidiary are included in the consolidated financial statements at their acquisition date fair value. However most at the present assets and liabilities are measured on an historical cost basis. Is this consistent. Explain?

Answer 1

Historical Cost is a value of an asset in which the value recorded in balance sheet is at its original cost at the time acquired by company. This method is used in United States under Generally Accepted Accounting Principles (GAAP)

Historical Cost is applied as a part of conservative accounting as it helps in avoiding overstating the value of an asset. Assets which are liquid are recorded at fair market value and impaired assets are recorded are written down to fair market value.