Historical Cost Accounting for Fixed Assets

Steps:

• Machine is a non-current asset purchased for $1000 with 4-year life and no residual value.
• Under historical cost principle, record at original purchase price, not current replacement cost.
• Annual straight-line depreciation is $1000 / 4 =$250.
• After one year, carrying amount is $1000 -$250 = $750.

Why D is correct:

• IAS 16 requires property, plant, and equipment at cost less accumulated depreciation, using historical cost model unless revaluation model is adopted.

Why the others are wrong:

• A: Uses current cost ($1200) without depreciation, violating historical cost and ignoring asset usage.
• B: Applies depreciation to current cost ($1200 -$300 = $900), but standard prohibits revaluation without policy change.
• C: Retains original cost ($1000) without depreciation, failing to reflect one year's economic benefit consumed.

Final answer: D