According to the historical cost principle, how is land recorded on financial statements?

• A. At its current market value
• B. At the price paid at purchase
• C. At a value selected by the owner
• D. At a discounted cash flow rate

Answer: (B)

The historical cost principle dictates that assets should be recorded on the financial statements at their purchase price, which represents the amount paid to acquire them. This principle ensures consistency and reliability in financial reporting since the purchase price is factual and verifiable. When land is recorded at the price paid at purchase, it reflects its actual cost to the business rather than subjective estimates or fluctuating market values.

This consistent application allows for clearer comparisons over time, as it eliminates variables associated with current valuations that may be driven by market changes. Thus, under GAAP, land is not adjusted to reflect its current market value or any other hypothetical values, ensuring that it remains at the original cost as recorded when the asset was acquired.