Advantage of Historical Cost in Decision Making

Question

What is the advantage of Historical Cost in Decision Making?

Answer 1

Advantage of Historical Cost in Decision Making:

As investor, whenever you have to evaluate the balance sheet for taking investment decision, you have to ensure every historical cost and try to transform it in fair value. With this, you can find actual lose of any asset whenever we compare historical cost with the current value. You can as well recreate the balance sheet on the basis changes in price level when you get balance sheet on the basis of historical cost. On another side, when you are employing historical cost technique for making balance sheet, you require not to record the gain before selling the asset since you have exposed all assets in the book on historical cost basis.