A corporation needed a new warehouse; a contractor quoted a $250,000 price to construct it. The corporation believed that it could build the warehouse for $215,000 and decided to use company employees to construct the warehouse. The final construction cost incurred by the corporation was $240,000 but the asset was recorded at $250,000. This is in violation of the:

Question

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The cost principle requires that assets be recorded at their historical cost, which is the actual cost paid or incurred to acquire or construct the asset. In this case, the corporation failed to record the asset at its historical cost of $240,000 and instead recorded it at the contractor's quoted price of $250,000, which is in violation of the cost principle.

A Corporation Needed a New Warehouse; a Contractor Quoted a $250,000