The Maxim Company acquired a building for $500,000. Maxim had the building appraised, and found that the building was easily worth $575,000. The seller had paid $300,000 for the building 6 years ago. Which accounting principle would require Maxim to record the building on its records at $500,000?

Question

Quizplus · Accepted Answer

The cost principle states that assets should be recorded at their cost of acquisition, which in this case was $500,000. The fact that the building may be worth more than this does not change the initial cost at which it was acquired.

The Maxim Company Acquired a Building for $500,000