According to the cost concept, at which value assets are recorded in the books of account?

Purchase price

The correct answer is option 4- Purchase price.

The cost concept requires that all assets are recorded in the book of accounts at their purchase price, which includes cost of acquisition, transportation, installation and making the asset ready to use. To illustrate, on June 2005, an old plant was purchased for 50 lakh by Shiva Enterprise, which is into the business of manufacturing detergent powder. An amount of 10,000 was spent on transporting the plant to the factory site. In addition, 15,000 was spent on repairs for bringing the plant into running position and 25,000 on its installation. The total amount at which the plant will be recorded in the books of account would be the sum of all these, i.e. 50,50,000. The concept of cost is historical in nature as it is something, which has been paid on the date of acquisition and does not change year after year. For example, if a building has been purchased by a firm for 2.5 crore, the purchase price will remain the same for all years to come, though its market value may change. Adoption of historical cost brings in objectivity in recording as the cost of acquisition is easily verifiable from the purchase documents. The market value basis, on the other hand, is not reliable as the value of an asset may change from time to time, making the comparisons between one period to another rather difficult.