The Green Hotel bought some kitchen equipment at € 18,000.00. The producers had initially informed them that the value was really € 21,500.00. It is expected that the equipment will have a market value of € 16,500.00 in six months.Based on the cost principle of the GAAP, what should be the recorded value of the kitchen equipment in the books of the Green Hotel on the purchase date?

Question

Quizplus · Accepted Answer

According to the cost principle of the GAAP, assets should be recorded at their actual cost, which in this case is € 18,000.00, the amount the Green Hotel paid for the kitchen equipment. The initial value provided by the producer is not relevant for accounting purposes. The expected market value in six months is also not relevant for the initial recording of the asset.

The Green Hotel Bought Some Kitchen Equipment at € 18,000