Final answer:
Basing the valuation of assets and liabilities on their historical cost is important due to its objectivity and the consistency and comparability it provides in financial statements over time.
Step-by-step explanation:
There are two important reasons to base the valuation of assets and liabilities on their historical cost. First, historical cost provides a clear and objective measure of what was paid for the asset or received in exchange for the liability at the time of the transaction. This avoids the subjectivity involved in estimating current values, which can fluctuate and be difficult to determine accurately. Second, using historical cost ensures consistency and comparability across financial statements over time, as it is not affected by market volatility or changing circumstances that may impact the perceived current value of the assets or liabilities.