Question

The principle that states that assets acquired by the business should be recorded at their exchange price is the O A. matching principle O B. cost principle of measurement OC. revenue-recognition principle OD. subjectivity principle

Answer 1

The principle that states that assets acquired by the business should be recorded at their exchange value is the

B. Cost principle of measurement.

Cost principle of measurement is signifying that business has to record cost which is actually paid for the transaction. Here the assets is purchased so whatever cost is incurred for buying that asset should be recorded at that price in the books of accounts.

Asset is reported or recorded at its cost value in the financial statement.

Why not option A, C and D because

A. Matching principle - It is states that expenses incurred by business should be recorded in the income statement in the period in which revenue generated. Expenses are used for generating revenue. Here, expenses to be matched with revenue.

Here, business is not matching the cost value with any revenue. Its only asset acquisition transaction.

C. Revenue-recognition principle - This principle states that revenue is recorded when it is earned or realized.

Asset acquired is not a revenue.

D. Subjectivity Principle - Objectivity principle states that financial statement should be prepared on the basis of evidence whereas basis of accounting is a knowledge and it may lead to subjectivity principle. As said though knowledge is based on true facts, conclusion or judgement might be not correct or up to the mark. That’s why accounting principle also need to be consider subjectivity principle.

It is clearly stating that asset is acquired so this principle is not applied.

Correct Answer is B. Cost principle of measurement