Historic cost accounting meaning

In legal and corporate practice, historic cost accounting (also called the historical cost convention) means recording assets and liabilities at the amounts originally paid or received, with subsequent depreciation, amortisation and impairment, rather than at current market value. Income (turnover/revenue) is recognised at the transaction price when earned, not remeasured to fair value unless required by applicable standards. The concept is a descriptive accounting convention reflected in company law and accounting standards, rather than a standalone statutory definition. UK law (Companies Act 2006 and the Accounts and Reports Regulations) sets out “historical cost accounting rules” alongside “fair value accounting rules”; Ireland’s Companies Act 2014 contains equivalent provisions. Under UK GAAP (FRS 102) and IFRS, many items are measured on a historic cost or amortised cost basis, though some classes (for example, investment property, certain financial instruments, and revalued PPE) may use fair value or revaluation. Key legal relevance includes: drafting and interpreting warranties, covenants and financial definitions; assessing distributable profits and net asset tests; valuing security and considering solvency, damages and insolvency proofs. Usage and effect are broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland, but lawyers should confirm whether any fair value or revaluation policies override historic cost...