Salam Aleikom Mohammed.
Jun 16 2014 11:12 PM
Mohammed, I think you are talking about the Historical Cost Concept. The Historical Cost Concept is also known as the Cost Principle. It is one of the basic underlying guidelines in accounting.
The historical cost principle requires that assets be recorded at the original cost (cash amount or its equivalent) at the time that an asset is acquired. For example, if equipment is acquired for the cash amount of $50,000, the equipment will be recorded at $50,000. If the equipment will be useful for 10 years with no salvage value, the straight-line depreciation expense will be $5,000 per year (cost of $50,000 divided by 10 years). The equipment's market value, replacement cost or inflation-adjusted cost will not affect the annual depreciation expense of $5,000. The company's balance sheets will report the equipment's historical cost minus the accumulated depreciation.