Tim is the accountant of a trading firm. Two years ago, the company bought a commercial van that had a value of $10,000. The van's current market price is $8,500. However, Tim continues to value it at the original cost. Which principle guides his action? A. going concern B. historical cost C. dual-aspect D. accrual

(B) Historical Cost is the principle that guides his action. In accounting, the historical cost is the cost of acquisition which remains as the initial general valuation criterion. At the acquisition price (or production cost), the value of the other considerations committed at the time of purchase must be increased (if applicable).

The correct answer is B.

A historical cost is the original cost of an asset and it is recorded as such in the accounting records. It is the nominal cost of the product at the time when it was acquired. In Tom's case, the historical cost of the van is $10,000.

A historical cost can be easily proven by accessing the records of the purchase. But is does no longer represent the actual or fair value of the asset as the value usually decreases with passing time (depreciation expense).

Historical cost is still a central concept for recording assets although the fair value concept is preferred, as it represents the real value of the asset an any given time.