Q.A business's machinery, bought for ₹5,00,000 three years ago, would now sell for only ₹3,00,000 in the market, but would cost ₹6,50,000 to replace new today. At what value does the Cost Concept require it to continue being recorded (before depreciation), and why?

Three different money figures are floating around this machine — only one of them is the figure accounting actually uses, and the Cost Concept explains exactly why.

The Cost Concept requires an asset to be recorded in the books at its historical cost — the price actually paid to acquire it — and this cost continues to be the basis for all further accounting (including depreciation) regardless of how the asset's market value or replacement cost later changes.

So despite the machinery's current resale value being ₹3,00,000 and its replacement cost being ₹6,50,000, it continues to be recorded (before any depreciation is deducted) at its original ₹5,00,000 cost. Neither the lower resale value nor the higher replacement cost is used, because both would depend on someone's estimate or an outside market quotation at a point in time, whereas the original invoice price of ₹5,00,000 is objective, verifiable and does not change with anyone's opinion.

This links directly to the Going Concern Concept: because the business is assumed to continue operating rather than sell off its machinery, its resale value is irrelevant to the accounts in the first place — the machine is there to be used, not sold.

Identify which of the three figures given (original cost, resale value, replacement cost) is the objectively verifiable, invoice-backed figure — that is always the one the Cost Concept selects.

Selecting the replacement cost (₹6,50,000) on the reasoning that it is 'more current' — the Cost Concept explicitly rejects current/replacement value in favour of original cost.