Chapter 9, Problem 1Q

To determine

Plant Assets: Plant assets refer to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

To explain: Historical cost principle applies to plant assets

Explanation of Solution

According to the historical cost principle, all the plant assets should be recorded at their historical or original cost in the books of accounts. The historical cost refers to the amount paid for purchasing the fixed assets. It includes the cost price of the asset plus any taxes, purchase commission or brokerage, or any amount paid to make the asset ready for operation.

Thus, when a plant asset is recorded in the books of accounts, it should be recorded at historical cost that is, at its total cost which includes all the expenditures spent to acquire the asset and make it ready to serve the purpose.

Conclusion

Thus, the plant assets applies to historical cost principle that requires all the plant assets to be recorded at its original cost.