Traditional accounting practice relies on the historical cost principle. For example, fixed assets (property, plant, and equipment) are reported at book value in the balance sheet, that is, at the cost to acquire them less accumulated depreciation. However, the fair value of these assets could be more or less than the reported book value.

Required:

a. Describe the concepts of decision usefulness and relevance.

b. If you were going to buy a company and were seeking information on which to base your decision to purchase, would you prefer that the assets be measured using historical cost or fair value? Why?

c. Do you believe that historical cost is relevant? Explain.