Question

What Accounting Principle Does the Following Represent:

Real Estate prices in Orderville have increased dramatically over the last five years. Although the land under Chad's office building is currently believed to be worth $500,000, it is recorded at $250,000 because that is the price he paid for it.

A) Historical Cost Principle.
B) Consistency Principle.
C) Revenue Recognition Principle.
D) Materiality Principle.

Answer 1

The accounting principle illustrated by the example of Chad's land being recorded at purchase price is the Historical Cost Principle. Correct option is A) Historical Cost Principle.

Step-by-step explanation:

The accounting principle represented by the example where Chad's land is recorded at his purchase price rather than its current market value is the Historical Cost Principle.

This principle dictates that assets should be recorded on the balance sheet at the cost paid to acquire them, not at their current market value.

The historical cost is considered verifiable and reliable, providing consistency in financial reporting. Therefore , Correct option is A) Historical Cost Principle.