Tom purchased an item for $5050 last year. This year, he sold the item to a complete stranger for $7000 and incurred a sum of $250 for advertising it. Which of the following statements is true?
A) Historical cost is $5050.
B) Fair value is $7000.
C) Net realisable value is $6750.
D) All of the above.

Question

Quizplus · Accepted Answer

- Historical cost is the amount at which an asset was originally purchased or acquired. Therefore, the historical cost of the item is $5050.
- Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. In this case, the fair value of the item is $7000 because that's the price at which Tom sold it.
- Net realizable value is the estimated selling price in the ordinary course of business minus the estimated costs of completion and the estimated costs necessary to make the sale. In this case, the net realizable value is $6750 because Tom incurred $250 for advertising it before selling it for $7000.

Tom Purchased an Item for $5050 Last Year