Which statement describes the Cost Model for assets?

Which statement describes the Cost Model for assets?

• A. Carrying assets at historical cost less accumulated depreciation
• B. Carrying assets at fair value
• C. Carrying assets at replacement cost
• D. Carrying assets at net realizable value

Answer: (A)

The key idea is how assets are measured for reporting: under the cost model, assets are recorded at their historical cost and then carried at that cost less depreciation and any impairment. This means the value on the balance sheet tracks the original purchase price, with reductions as the asset wears out (depreciation) and if its value drops below the recoverable amount (impairment). The other descriptions refer to different measurement approaches—that is, carrying at fair value would be the revaluation model, replacement cost isn’t a standard measurement basis for property, plant and equipment, and net realizable value is used for inventories. So the statement that best describes the Cost Model is carrying assets at historical cost less accumulated depreciation.

The key idea is how assets are measured for reporting: under the cost model, assets are recorded at their historical cost and then carried at that cost less depreciation and any impairment. This means the value on the balance sheet tracks the original purchase price, with reductions as the asset wears out (depreciation) and if its value drops below the recoverable amount (impairment). The other descriptions refer to different measurement approaches—that is, carrying at fair value would be the revaluation model, replacement cost isn’t a standard measurement basis for property, plant and equipment, and net realizable value is used for inventories. So the statement that best describes the Cost Model is carrying assets at historical cost less accumulated depreciation.