Historical cost
Historical cost is the convention of recording an asset at the price originally paid to acquire it, with no subsequent adjustment for changes in market value. The only reduction applied thereafter is accumulated depreciation.
Also known asoriginal cost
See it move
A side-by-side comparison contrasts the balance sheet entry with the current market value of the same asset. On the historical cost side, an original purchase price of €2,000,000 paid in 2010 is reduced by accumulated depreciation of €800,000 to give a reported book value of €1,200,000. On the market side, the estimated selling price today is €5,000,000 — a gap of €3,800,000 above book value that never appears on the balance sheet. The note captures the trade-off: historical cost is objective and auditable, but figures can diverge sharply from economic reality over time.
Check yourself
Five years ago, Renta GmbH purchased a warehouse for €800,000. A current market appraisal puts its value at €1,400,000. Accumulated depreciation to date totals €200,000. Under the historical cost convention, at what amount does the warehouse appear on the balance sheet?
If you trained under a national GAAP
DE · HGBWhere national-GAAP intuition diverges from the international standard
HGB (German)
HGB establishes a strict historical cost ceiling: non-current assets may be written down when their value falls below original acquisition or production cost, and where market value subsequently recovers a reversal is required, but the carrying amount can never be restated above the original cost. Upward revaluation beyond historical cost is generally prohibited, so the balance sheet reflects the amounts originally paid rather than current market values.
IFRS
Under IFRS, entities may elect a revaluation model for entire classes of property, plant and equipment, restating carrying amounts to fair value at each revaluation date. Increases above original cost are credited to a revaluation surplus within equity rather than through profit or loss, and the asset is thereafter carried at its higher fair value — a treatment that can produce balance sheet figures materially different from those an HGB entity would report for identical assets.